<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______
COMMISSION FILE NUMBER O-13198
------------------------
MORTON INDUSTRIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 38-0811650
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1021 W. BIRCHWOOD, MORTON, ILLINOIS 61550
(Address of principal executive offices)
(309) 266-7176
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
As of March 2, 1999, the aggregate market value of the Class A Common Stock
held by non-affiliates was approximately $20,283,000, and there were 3,867,573
shares of Class A Common Stock and 200,000 shares of Class B Common Stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of the Registrant for the Annual
Meeting of Shareholders to be held in June, 1999 are incorporated by reference
into Part III hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
On January 20, 1998, Morton Metalcraft Holding Co. and Subsidiaries
("Morton") merged (the "Merger") with MLX Corp. ("MLX"), with MLX being the
surviving corporation. As a result of the Merger, Morton ceased to exist as a
separate corporate entity and MLX amended its Articles of Incorporation to
change the corporate name of MLX to Morton Industrial Group, Inc.
Since the date of merger, we have made four 1998 acquisitions:
We established our Contract Plastics Division in March 1998 through the
acquisition of Carroll George located in Northwood, Iowa. Carroll George
specializes in manufacturing thermoformed plastic products for construction and
agricultural original equipment manufacturers. Carroll George had sales of $22.8
million in 1997. We acquired Carroll George for $8.1 million in cash, including
the payment of all revolving credit and term loan debt of Carroll George. We
expanded our plastic manufacturing capabilities and capacity with the
acquisition of Mid-Central Plastics in May 1998. Operating out of its facility
in West Des Moines, Iowa, Mid-Central Plastics specializes in manufacturing
injection molded plastic products for construction and agricultural original
equipment manufacturers as well as other industrial customers. Mid-Central
Plastics had sales of $28.5 million in 1997. We acquired Mid-Central Plastics
for $23.8 million in cash, including the payment of all revolving credit and
term loan debt of Mid-Central Plastics.
In April 1998, we acquired B&W Metal Fabricators, a sheet metal fabricator
with a facility in Welcome, North Carolina. Through the acquisition of B&W Metal
Fabricators, we expanded our presence in the southeastern United States,
allowing us to better serve our existing customers. B&W Metal Fabricators had
sales of $7.7 million in 1997. We acquired B&W Metal Fabricators, Inc. for $8.5
million consisting of $4.9 million in cash and the balance in the form of
unsecured notes payable. We also acquired certain assets of SMP Steel
Corporation in 1998, including its sheet metal fabrication facility in Honea
Path, South Carolina for $2.2 million in cash. The acquisition of these assets
added metal fabrication capacity for our growing business in the southeastern
United States.
In 1999, we have entered into agreements to acquire the following additional
businesses:
On February 26, 1999, we entered into an agreement with Worthington Custom
Plastics to acquire three manufacturing facilities which produce plastic
components for construction and industrial original equipment manufacturers. The
business to be acquired had sales of $105.1 million in 1998. The Worthington
acquisition will expand our plastic product offerings to include washing machine
parts, electronics housings and other injection molded and thermoformed plastic
products. The Worthington acquisition will provide us critical mass in the
plastics business and adds new original equipment manufacturers to our customer
base.
Pursuant to the agreement to purchase the Worthington businesses, we are (i)
paying Worthington Custom Plastics $25.0 million in cash, subject to a working
capital adjustment, (ii) issuing $10.0 million in face amount of non-voting
preferred stock of Morton, (iii) issuing 15% of the common stock of our
subsidiary that will hold the businesses acquired in the Worthington acquisition
and (iv) assuming certain liabilities. The preferred stock will be mandatorily
redeemable five years from its issuance date and will pay annual dividends at a
rate of 8%. We may pay such dividends in cash or in shares of additional
preferred stock. Worthington Custom Plastics has the right to sell the 15% of
the common stock of the Worthington acquisition subsidiary back to us on March
31, 2005 and March 31, 2006. We have the right to purchase such common stock on
April 30, 2005 and April 30, 2006. In each case, such purchase or sale would be
for fair market value at the time of such transaction. The closing of our
purchase of the Worthington businesses is contingent upon our obtaining
financing on terms satisfactory to us.
On February 26, 1999, we entered into an agreement to acquire certain assets
of Midland Partners. These assets are used to manufacture finished metal
machined parts for construction, agricultural and industrial original equipment
manufacturers, primarily Caterpillar and Deere. The assets include two
2
<PAGE>
facilities located in Pekin and Galesburg, Illinois. The acquired business had
1998 sales of $16.5 million. The Midland acquisition will allow us to offer
metal machined parts to our customers.
Pursuant to the agreement to purchase the Midland businesses, we are (i)
paying approximately $7.5 million in cash, (ii) issuing a $1.0 million
subordinated promissory note to the seller, (iii) assuming approximately $4.7
million of indebtedness, (iv) undertaking an earnout obligation to the sellers
of the Midland businesses and (v) assuming certain liabilities. The earnout
obligation calls for performance based payments in the first and second years
after the consummation of the acquisition. We estimate that such payments could
total up to $2.0 million. The closing of our purchase of the Midland businesses
is contingent upon our obtaining financing on terms satisfactory to us.
NARRATIVE DESCRIPTION OF BUSINESS
BUSINESS
OVERVIEW
We are a contract manufacturer of highly engineered metal and plastic
components and subassemblies for construction, agricultural and industrial
original equipment manufacturers. Our metal products include tanks, engine
enclosures and panels used in backhoes, excavators, tractors and similar
industrial equipment. Our plastic products include enclosures and parts used in
off road vehicles, home appliances, computer equipment and other products. Our
largest customers include Caterpillar, Inc. and Deere & Co. Our 8 manufacturing
facilities are located in the midwestern and southeastern United States in close
proximity to our customers.
We have been in operation as a metal fabricator since 1963 and began
producing sheet metal products for Caterpillar in 1975 and Deere in 1989. Since
1992, our sales to Caterpillar have grown 18% annually and our sales to Deere
have grown 65% annually. Today, we are the largest supplier of sheet metal
products to Caterpillar and Deere in the United States. In 1995, we supplied
Caterpillar with approximately 2,000 and Deere with approximately 400 sheet
metal products. Today, we supply Caterpillar with approximately 3,400 and Deere
with approximately 3,200 sheet metal products. In many cases, we have increased
our sales per vehicle to these customers. We have supported this growth in sales
to Caterpillar, Inc. and Deere & Co. by expanding our manufacturing capacity and
integrating our design processes with the design processes of these customers.
In 1997 we began an expansion program to broaden our geographic presence to
better serve existing customers and to diversify our product offerings and
customer base. In response to Caterpillar and Deere opening plants in the
southeastern United States, we opened our Apex, North Carolina metal fabrication
facility in 1997. We further expanded our sheet metal fabrication business in
the southeastern United States in 1998 by acquiring two metal fabrication
facilities located there. On February 26, 1999 we entered into an agreement to
acquire the metal machined parts business of Midland Partners thereby expanding
our metal product offerings.
In 1998 we formed our Contract Plastics Division by acquiring two plastics
manufacturers with combined 1997 sales of $51.3 million. These acquisitions
expanded our product offerings to include injection molded and thermoformed
plastic products. On February 26, 1999, we entered into an agreement with
Worthington Custom Plastics to acquire three manufacturing facilities located in
the southeastern United States which produce plastic products for original
equipment manufacturers. The business to be acquired had sales of $105.1 million
in 1998. The Worthington acquisition provides us critical mass in our plastics
business, increases our presence in the southeastern United States and
diversifies our customer base.
MARKETS
Our products are used in construction, agricultural and industrial
equipment. As original equipment manufacturers in these industries have
intensified their focus on core competencies, they have increasingly
3
<PAGE>
outsourced more of their parts production to reduce costs. To effectively
manufacture products for original equipment manufacturers, suppliers must invest
in technologically advanced equipment, develop in-house design capabilities and
coordinate manufacturing and product delivery with their customers.
Historically, our largest customers, Caterpillar, Inc. and Deere & Co., have
been supplied by a large number of local suppliers that would each produce a
small number of products. As Caterpillar, Inc. and Deere & Co. have increased
the complexity of their equipment and become more dependent on component and
subassembly suppliers, they have reduced the size of their supplier base and
have established close relationships with a smaller number of sophisticated
suppliers who can provide a range of services, including design engineering,
prototyping and just-in-time delivery. The high levels of service necessary to
serve these customers coupled with the relatively low volumes of equipment they
produce has resulted in the sole-sourcing of many products rather than dual or
multi-sourcing as is typical in higher volume equipment manufacturing
industries. As these customers continue to reduce the size of their supplier
base and outsource a growing percentage of their product needs, we expect to
become the sole-source for an increasing number of products.
CONSTRUCTION EQUIPMENT. The $22 billion U.S. construction equipment
industry includes construction, earth moving and forestry equipment, as well as
some materials handling equipment, cranes, off-highway trucks and a variety of
machines for specialized industrial applications. The U.S. construction
equipment industry is dominated by Caterpillar, Inc. and Deere & Co., who
together accounted for approximately 55% of total unit sales in 1998. We supply
components and subassemblies, such as fuel tanks, engine enclosures and panels,
used in backhoes, excavators and other construction equipment.
AGRICULTURAL EQUIPMENT. The $15 billion U.S. agricultural equipment
industry includes large, relatively expensive products such as tractors,
combines and other farming equipment. Caterpillar, Inc. and Deere & Co.
accounted for approximately 37% of total agricultural equipment unit sales in
1998. We supply components and subassemblies such as steps, fenders, feeder
housings, grills and landings, used in tractors, combines and other agricultural
equipment.
INDUSTRIAL EQUIPMENT. We produce a range of products for equipment used in
industrial applications other than construction and agriculture. Our products
are used in recreational off highway vehicles, store fixtures, office furniture
and lighting fixtures, and upon the completion of the Worthington acquisition
will include products used in washing machines, computers, aircraft seating and
commercial lighting.
CUSTOMERS AND PRODUCTS
CUSTOMERS.
Our customers include Caterpillar, Inc. Deere & Co. and Case Corporation in
the construction and agricultural markets and Polaris Industries, Inc., Hallmark
Cards, Inc., The HonCompany and Lithonia, Division of National Service
Industries, Inc. in the industrial market. Sales to Caterpillar, Inc. and Deere
& Co. represented 79% of our 1998 net sales. Caterpillar, Inc. and Deere & Co.
purchasing decisions, however, are made separately at each plant, in effect
making each plant a separate customer. Our products are currently being
purchased by twenty-four Caterpillar, Inc. and Deere & Co. manufacturing plants
throughout the midwestern and southeastern United States. Caterpillar, Inc. and
Deere & Co.'s decentralized purchasing programs mitigate our susceptibility to
any single customer. Other than Deere & Co. and Caterpillar, Inc., none of our
customers accounted for more than 10% of our net sales in 1998.
PRODUCTS AND SERVICES
We view our products as falling into the following categories:
METAL PRODUCTS
SHEET METAL ENCLOSURES AND BOXES. This product category includes generator
set enclosures, electrical and battery boxes, panels, doors, hoods and
covers used in backhoes, excavators and tractors.
4
<PAGE>
SPECIAL WELDMENTS. This product category includes lift arms, seat modules,
guards, platforms and step assemblies used in backhoes, excavators,
crawlers, tractors and skid steers.
FABRICATED STEEL TANKS. This product category includes fuel and hydraulic
fluid reservoirs used in motor graders, trucks and crawlers.
FEEDER HOUSINGS. This product category includes feeder housings and other
harvester components manufactured for agricultural equipment.
SHEET METAL COMPONENT PACKAGES. This product category includes laser cut
and formed parts that are used in higher level assemblies at customer
locations. These products include brackets, plates and frame components that
are used in a wide variety of customer end products.
STORE FIXTURES. This product category includes backframes, lights and
brackets used in store displays.
PLASTIC PRODUCTS
OFF ROAD WORK AND RECREATIONAL VEHICLE PARTS AND SUBASSEMBLIES. This
product category includes fenders, covers, enclosures and functional
components such as brackets and hoppers that are used on tractors and farm
equipment. This product category also includes body panels, racks, bumpers,
roofs, windshield support assemblies, seat bases for snowmobiles, personal
watercraft and off road all terrain vehicles.
OFF ROAD VEHICLE INTERIORS. This product category includes headliners,
consoles, control panels and subassemblies, such as ventilation, lighting
and entertainment systems, that are installed on construction and
agricultural equipment.
SERVICES
PRODUCT DESIGN AND DEVELOPMENT. This service category includes design,
development, analysis, and costing for our products. We often work with our
customers in the early stages of designing their products.
PROTOTYPING/TOOLING. This service category includes prototyping, tooling
and preproduction steps in the manufacturing process. Our dedicated
prototyping and tooling departments work with customers throughout
development efforts, allowing for a smooth introduction of new products.
PART DECORATING AND EXTERIOR FINISHING. This service category includes a
number of decorating operations such as metal stamping, pad printing, hot
stamping, painting and decal application.
JUST-IN-TIME DELIVERY. This service category includes providing our
customers the ability to order products in low lot sizes with minimal lead
time enabling them to reduce their overall order cycle time. We also provide
deliveries which are specially sequenced to our customers' manufacturing
schedules.
SALES AND MARKETING
To better serve our customers, we have combined our sales and engineering
organizations. The sales and engineering group has primary responsibility for
managing relationships with customers and working with them to design new
products. Our customers are serviced by account teams led by an account manager
and include representatives from our primary functional areas. These areas
include engineering, quality assurance and customer service. Account teams work
with the customer to design products and produce prototypes, schedule production
and monitor quality and customer satisfaction. Our account managers also lead
the new business development process, working with customers to obtain details
of new outsourcing programs, new products currently being designed and existing
products which will be redesigned. We believe that the structure of our sales
and marketing organization helps to ensure cooperation in product design and
helps us to gain repeat and new business from our customers.
5
<PAGE>
MANUFACTURING/PRODUCTION
We utilize a range of manufacturing processes to serve the needs of our
customers. Using these processes, we can manufacture products ranging from
simple metal and plastic parts to more complex metal and plastic subassemblies.
Our design and engineering capabilities provide us with a competitive edge in
obtaining and maintaining preferred supplier status with our customers.
SHEET METAL FABRICATION. Our sheet metal fabrication capabilities include
laser cutting, forming, press punching, welding, painting and assembly
processes. Our sheet metal fabrication processes, operating on information
created by Pro Engineering software, utilize optic laser cutting machines to cut
parts at high speeds. We use robotic welders to complement our manual welding
operations. Our painting operations are capable of producing the wide variety of
paint finishes required by our customers.
INJECTION MOLDED AND THERMOFORMING PLASTIC COMPONENTS. Our injection molded
plastic capabilities include ultrasonic and hot plate welding, adhesive and
solvent bonding, insert staking, snapfit and fastener assembly. Our injection
molded processes utilize injection molding machine presses and gas assist units.
Our thermoformed plastic capabilities include vacuum and pressure thermoforming,
robotic waterjet and router trimming, hot wire, die and ribbon cutting, and
adhesive and ultrasonic bonding. These processes are performed on thermoform
units, automated robotic trim stations, sheet perforators and a laminator.
ENGINEERING AND DESIGN CAPABILITIES. Engineering capabilities have become
increasingly important in our industry as original equipment manufacturers have
increasingly emphasized a supplier's design services for new projects. Our
computer aided design capabilities include Pro Engineering, Anvil 1000/5000,
Apollo, and Merry Mechanization. We have focused our computer aided design
investment on the Pro Engineering system during the last several years because
Pro Engineering is the preferred system of Caterpillar and Deere. Pro
Engineering allows us to download completed and approved designs directly to
production equipment in most areas of our plants. The resulting direct
interaction between our customers' designers and our engineers facilitates joint
development of new components and redesigns of old parts.
SYSTEMS AND CONTROLS. Consistent with our emphasis on technology, computer
systems and controls are an integral part of our operating strategy. We have
invested heavily in our management information systems, computer aided design
capabilities and control functions, particularly during the last several years.
We also use computer systems to provide timely performance measurements of shop
floor activity, daily actual cost information for each factory, electronic data
interchange with major customers, real time dispatching of work orders,
integration of purchasing information with production scheduling, capacity
management and inventory information.
RAW MATERIALS
The primary raw materials that we use are sheet steel, compounded injection
molding resins, fabrications, thermoplastic sheeting, sheeted foam, assembly
parts, paint and vinyl sheeting. Prices of these raw materials fluctuate,
although the price of our most significant raw material, steel, has dropped over
the past several years. Historically we have been able to negotiate with our
customers to have them absorb increases in our raw material costs. In addition,
we have generally passed on reductions in our raw material costs to our
customers. We also participate in the steel purchase programs of certain major
customers which lowers our cost for steel. Generally, we purchase our raw
materials from multiple suppliers, and we believe that the prices we obtain are
competitive.
COMPETITION
The manufacturing and supplying of highly engineered metal and plastic
products to original equipment manufacturers is a fragmented and highly
competitive business, with no single supplier having significant market share.
We believe suppliers with a strong management team, a range of capabilities,
modernized facilities and technologically sophisticated equipment like us are
more likely to benefit from original equipment manufacturers' increased
outsourcing of production than other participants in the
6
<PAGE>
industry lacking such assets. However, competitive pressures or other factors
could cause us to lose market share or could result in a significant price
erosion with respect to our products.
REGULATORY/ENVIRONMENTAL MATTERS
Our operations are subject to numerous federal, state and local
environmental and worker health and safety laws and regulations. We believe that
we are in substantial compliance with such laws and regulations.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Morton Industrial Group, Inc. has two reportable segments, contract metal
fabrication and contract plastic fabrication. The contract metal fabrication
segment provides full-service fabrication of parts and sub-assemblies for the
construction, agricultural, and industrial equipment industry. The contract
plastic fabrication segment provides full-service vacuum formed and
injection-molded parts and sub-assemblies for the construction, agricultural,
and industrial equipment industry.
Additional information regarding segments can be found in footnote 17 of the
accompanying Notes to Consolidated Financial Statements of the Company.
BACKLOG.
Our backlog of orders was approximately $93.4 million at December 31, 1998,
and $69.9 million at December 31, 1997. We anticipate that we will substantially
fill all of the backlog orders as of December 31, 1998 during the current year.
7
<PAGE>
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, AND CONCESSIONS.
We hold no material patents, trademarks, franchises, or concessions. We have
been granted a number of software licenses that we use in our design,
production, and other business operations. All of these licenses have customary
terms and conditions.
WORKING CAPITAL ITEMS.
Our working capital requirements reflect several business factors. Our
working capital requirements are typically greater during the second half of the
calendar year because both Deere & Co. and Caterpillar, Inc. suspend operations
for two weeks of vacation time during July and/or August. Production operations
of both of these customers also slow during the last two weeks of December.
During these periods, we must rely more heavily on our credit facilities for
liquidity. Our rapid growth over the last two years has also increased our need
for working capital to meet the capital expenditures required to increase
production capacity.
EMPLOYEES
As of March 1, 1999, we employed 1,601 employees, of which 1,349 were hourly
and 252 were salaried. None of these employees was subject to a collective
bargaining agreement. We believe our relationship with our employees is good.
ITEM 2. PROPERTIES
PROPERTIES
The following table presents summary information regarding our facilities.
We lease our facilities in Peoria, Illinois, Apex, North Carolina, and our
Detroit Avenue facility in Morton, Illinois and own the remainder of our
properties. Lease terms for these facilities expire between 2003 and 2008. Our
facilities are generally located in close proximity to our customers.
<TABLE>
<CAPTION>
APPROX
LOCATION SQ. FT. PRODUCTS MANUFACTURED
- ------------------------------ --------- ----------------------------------------------------------------------
<S> <C> <C>
1021 West Birchwood Street 270,000 Sheet metal enclosures and boxes, sheet metal component packages and
Morton, IL store fixtures
400 Detroit Avenue Morton, IL 155,000 Special weldments and fabricated steel tanks
Peoria, IL 135,000 Feeder housings
Apex, NC 100,000 Special weldments, sheet metal enclosures and boxes, sheet metal
component packages and fabricated steel tanks
Honea Path, SC 30,000 Store fixtures and sheet metal component packages
Welcome, NC 185,000 Sheet metal enclosures and boxes, special weldments, fabricated steel
tanks and sheet metal component packages
Northwood, IA 110,000 Off road vehicle interiors
West Des Moines, IA 115,000 Off road work and recreational vehicle parts and subassemblies, off
road vehicle interiors and appliance parts and components
</TABLE>
In addition to manufacturing operations, our Birchwood Street complex in
Morton, Illinois, houses all non-production personnel, including senior
management, purchasing, engineering, sales, production control and accounting.
The Birchwood Street complex also handles receiving, pre-production and first
operations.
While we own most of the equipment used in our operations, we also use
customer-owned tooling and equipment as well as equipment under operating
leases. We believe our facilities are adequate to satisfy current and reasonably
anticipated production requirements.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
We are involved in routine litigation. We are not currently a party to any
legal proceedings that we believe would have a material adverse effect on our
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prior to the conclusion of the Merger, when our name was MLX Corp., our
common stock traded on the over-the-counter market under the symbol "MLXR" and
was quoted on the OTC Bulletin Board of the National Association of Security
Dealers, Inc. Following the Merger, and through September 9, 1998, our Class A
Common Stock traded on the over-the-counter market under the symbol "MGRP" and
was quoted on the OTC Bulletin Board. On September 10, 1998, our Class A common
stock began trading on the Nasdaq Small Cap Market under the symbol "MGRP". The
following table sets forth the quarterly high and low bids for the common stock
during 1997 as reported by Bloomberg Financial Services, and the high and low
close prices during 1998 as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
1998
October 1 to December 31................................................................ $ 14.3750 $ 12.0000
July 1 to September 30.................................................................. $ 17.2500 $ 12.7500
April 1 to June 30...................................................................... $ 19.8750 $ 17.5000
January 1 to March 31................................................................... $ 19.1250 $ 16.8750
1997
October 1 to December 31................................................................ $ 19.0000 $ 15.8125
July 1 to September 30.................................................................. $ 16.2500 $ 14.6875
April 1 to June 30...................................................................... $ 14.8750 $ 14.2500
January 1 to March 31................................................................... $ 16.7500 $ 13.2500
</TABLE>
As of March 2, 1999 there were 5,367 holders of record and 2,187 beneficial
holders of our Class A Common Stock.
We did not declare or pay any dividends in our fiscal years ended December
31, 1998, and 1997. Our credit agreement precludes the payment of dividends.
ITEM 6. SELECTED FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are certain selected historical financial data. This
information should be read in conjunction with our financial statements and the
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein. The financial data for,
and as of the end of, each of the four fiscal years ended June 30, the six
months ended December 31, 1997 and the fiscal year ended December 31, 1998 are
derived from our audited financial statements. The
9
<PAGE>
financial data for, and as of the end of, the six months ended December 31, 1996
and the year ended December 31, 1997 are derived from our unaudited financial
statements.
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED ENDED
YEAR ENDED DECEMBER
JUNE 30, DECEMBER 31, 31,
------------------------------------------ -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1996 1997 1997
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................. $ 39,602 $ 48,568 $ 59,006 $ 80,762 $ 32,958 $ 46,598 $ 94,402
Cost of sales.............................. 32,673 40,730 50,049 70,541 29,206 41,932 83,267
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 6,929 7,838 8,957 10,221 3,752 4,666 11,135
General and administrative expenses........ 3,806 3,951 4,900 7,003 2,578 4,591 9,016
Merger related charges (1)................. -- -- -- -- -- 6,069 6,069
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).................... 3,123 3,887 4,057 3,218 1,174 (5,994) (3,950)
Interest and other expense................. 1,107 2,803 3,096 3,206 1,597 1,682 3,291
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes and
extraordinary charge..................... 2,016 1,084 961 12 (423) (7,676) (7,241)
(Provision) benefit for income taxes....... (878) (522) (424) (5) 141 3,031 2,885
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before extraordinary
charge................................... $ 1,138 $ 562 $ 537 $ 7 $ (282) $ (4,645) $ (4,356)
Earnings (loss) before extraordinary charge
per share:
Basic.................................... .24 .16 .28 -- (.15) (2.39) (2.24)
Diluted.................................. .24 .16 .16 -- (.15) (2.39) (2.24)
FINANCIAL POSITION (AT END OF PERIOD):
Working capital............................ $ 528 $ 4,548 $ 4,078 $ 2,147 $ 3,869 $ (11,315) $ (11,315)
Total assets............................... 23,576 27,550 29,576 34,362 29,142 39,388 39,388
Total debt................................. 12,604 17,240 26,994 27,608 27,328 32,494 32,494
Stockholders' equity (deficit)............. $ 2,564 $ (9,644) $ (9,106) $ (9,099) $ (9,388) $ (13,552) $ (13,552)
<CAPTION>
<S> <C>
1998
---------
<S> <C>
OPERATING DATA:
Net sales.................................. $ 151,196
Cost of sales.............................. 129,740
---------
Gross profit............................... 21,456
General and administrative expenses........ 14,499
Merger related charges (1)................. --
---------
Operating income (loss).................... 6,957
Interest and other expense................. 4,459
---------
Earnings (loss) before income taxes and
extraordinary charge..................... 2,498
(Provision) benefit for income taxes....... (415)
---------
Earnings (loss) before extraordinary
charge................................... $ 2,083
Earnings (loss) before extraordinary charge
per share:
Basic.................................... .52
Diluted.................................. .45
FINANCIAL POSITION (AT END OF PERIOD):
Working capital............................ $ (2,442)
Total assets............................... 100,728
Total debt................................. 70,292
Stockholders' equity (deficit)............. $ 6,868
</TABLE>
- ------------------------------
(1) Merger related charges includes $4,000 for one-time bonuses paid to members
of management and other employees, $1,324 of professional fees and $745 in
compensation expense from issuance of stock options, all of which were
incurred by Morton in connection with the merger with MLX.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in this annual
report.
GENERAL
We are a contract manufacturer of highly engineered metal and plastic
components and subassemblies for construction, agricultural and industrial
original equipment manufacturers. Our largest customers, Caterpillar Inc. and
Deere & Co., accounted for 79% of our 1998 net sales.
We price our fabricated metal and thermoformed plastic products on a cost
plus basis and use an industry standard to price our injection molded plastic
products. In pricing our products, we consider the volume of the product to be
manufactured, required engineering resources and the complexity of the product.
Our customers typically expect us to offset any manufacturing cost increases
with improvements in production flow, efficiency, productivity or engineering
redesigns. As a part of their supplier development programs, our primary
customers initiate cost improvement efforts on a regular basis. At the
conclusion of any such effort, when savings can be documented, we share the
savings with our customer.
10
<PAGE>
We have historically grown net sales and increased profitability through
increased penetration of our key customers. We have increased the number of
customer equipment models that include our products and have increased the
number of our products on each of our customers' equipment models. This has
resulted in net sales to Caterpillar and Deere growing 18% and 65%,
respectively, annually since 1992. We have also grown our net sales by expanding
into the southeastern United States. In addition, we have increased our product
offerings to our customers through acquisitions. These acquisitions allow us to
better serve our customers growing outsourcing needs.
RESULTS OF OPERATIONS
The following table presents certain historical financial information
expressed as a percentage of our net sales.
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED ENDED
DECEMBER
YEAR ENDED JUNE 30, DECEMBER 31, 31,
------------------------------------------ -------------------- ---------
1994 1995 1996 1997 1996 1997 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................................. 17.5 16.1 15.2 12.7 11.4 10.0 11.8
General and administrative expenses.......... 9.6 8.1 8.3 8.7 7.8 8.4 8.8
Merger related charges....................... -- -- -- -- -- 14.5 7.1
Operating income (loss)...................... 7.9 8.0 6.9 4.0 3.6 (12.9) (4.2)
Interest and other expense................... 2.8 5.8 5.3 4.0 4.9 3.6 3.5
Earnings (loss) before income taxes and
extraordinary charge....................... 5.1 2.2 1.6 0.0 (1.3) (16.5) (7.7)
<CAPTION>
1998
---------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.................................... 100.0%
Gross profit................................. 14.2
General and administrative expenses.......... 9.6
Merger related charges....................... --
Operating income (loss)...................... 4.6
Interest and other expense................... 2.9
Earnings (loss) before income taxes and
extraordinary charge....................... 1.7
</TABLE>
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
Net sales for the year ended December 31, 1998 were $151.2 million compared
to $94.4 million for the year ended December 31, 1997, an increase of $56.8
million or 60.2%. Four acquisitions made during 1998 provided incremental net
sales of approximately $44.7 million. The additional $12.1 million resulted
primarily from increased sales of components and subassemblies used in
construction and industrial machinery. Our Apex, North Carolina facility was
operational during all of 1998, compared with only minimal sales made during its
start-up stages in late 1997.
Sales to Caterpillar and Deere were approximately 79% and 87% of our net
sales for 1998 and 1997, respectively.
Sales to agricultural original equipment manufacturers were 31% of our 1998
net sales. During 1998, certain of our agricultural customers made announcements
about a softening in demand for their agricultural products. As a result, our
net sales from agricultural products dropped 33% in the fourth quarter of 1998
(excluding sales from our 1998 acquisitions) compared to the fourth quarter of
1997. We expect this lower level of demand to continue in 1999. In response to
these announcements, we have implemented cost management measures, including
manpower reductions, as appropriate. We have also been selected to manufacture a
significant number of additional components for new construction and industrial
products for Caterpillar and Deere in 1999. We expect sales of these additional
components to significantly offset the loss of agricultural sales.
Gross profit for the year ended December 31, 1998 was $21.5 million compared
with $11.1 million for the year ended December 31, 1997, an increase of $10.4
million or 93.7%. The four acquisitions made during 1998 provided $6.2 million
of the incremental gross profit. The additional increase of approximately $4.2
million resulted primarily from additional sales of components and subassemblies
used in construction and industrial machinery, net of the preproduction costs at
Apex, North Carolina. The gross margin for the year ended December 31, 1998 was
14.2%, compared to 11.8% for the prior year. The increase was the result of
increased productivity at our Morton and Peoria, Illinois plants, improved labor
efficiency and
11
<PAGE>
material use stemming from investments in production technology, including
laser-cutting technology, as well as product mix. The improvements at the
Illinois plants were partially offset by preproduction costs experienced at our
Apex, North Carolina plant.
General and administrative expenses for the year ended December 31, 1998
amounted to $14.5 million compared with $15.1 million in the prior year, a
decrease of $0.6 million or 4.1%. This decrease represents the effects of
non-recurring costs related to our merger with MLX of approximately $6.7
million, net of $3.4 million of incremental costs related to the four 1998
acquisitions, as well as additional 1998 expenses related to increased revenue
of approximately $2.5 million. Excluding these non-recurring costs, general and
administrative expenses, as a per cent of sales, were 9.6% in 1998 and 8.9% in
1997.
Interest expense in the year ended December 31, 1998 amounted to $4.7
million compared to $3.4 million in 1997. This increase resulted primarily from
additional interest costs incurred during the last three quarters of the year
from increased debt related to our 1998 acquisitions.
Income taxes of approximately $0.4 million were provided for the year ended
December 31, 1998, compared with an income tax benefit of $2.9 million for the
twelve months ended December 31, 1997. For 1998, the use of a net operating loss
carryforward reduced the average income tax rate to 16.6%. For 1997, the benefit
reflects a 40.0% effective tax rate.
An extraordinary charge for debt expense related to the early retirement of
debt of $419 ($676 net of an income tax benefit of $257) was recognized during
calendar year ended December 31, 1998. An extraordinary charge for banking costs
related to the early retirement of debt of $553 ($892 net of an income tax
benefit of $359) was recognized during calendar year ended December 31, 1997.
SIX MONTHS ENDED DECEMBER 31, 1997 VERSUS SIX MONTHS ENDED DECEMBER 31, 1996
Net sales for the six months ended December 31, 1997 were $46.6 million
compared to $33.0 million for the six months ended December 31, 1996, an
increase of $13.6 million or 41.2%. The increase resulted primarily from
increased sales of fabricated sheet metal to Deere. Sales to Deere and
Caterpillar were approximately 87% and 85% of total sales for the six months
ended December 31, 1997, and 1996, respectively.
Gross profits for the six months ended December 31, 1997, increased by
approximately $0.9 million, or 24.0%, over the same six months in the prior
year. The gross margin achieved in the six months ended December 31, 1997, was
10.0%, compared to 11.4% for the six months ended December 31, 1996. The decline
resulted from expenses associated with the start-up of our Apex, North Carolina
facility, an approximately $2.0 million downward adjustment of inventory values
and a reduction in certain intangible assets. The effect of these adjustments
was partially offset by increased productivity at our Peoria and Morton,
Illinois plants, improved labor efficiency and better material use stemming from
investments in production technology, including laser cutting technology. New
products manufactured for Deere required higher material content and contributed
to lower labor and overhead costs.
General and administrative expenses for the six months ended December 31,
1997, amounted to $10.7 million, compared with $2.6 million for the six months
ended December 31, 1996, or an increase of $8.1 million. Of this increase, $4.0
million was accrued bonuses to be paid to members of management and other
employees. We also accrued professional fees, investment banking costs, credit
agreement fees, and other costs of the merger with MLX and the related bank
financing that totaled approximately $2.0 million for the six month period ended
December 31, 1997, that were not incurred in the comparable year earlier period.
General and administrative expenses also increased as a result of the increase
in sales volume over the prior year's period, approximately $0.5 million of
expenses related to the start-up of operations at our Apex, North Carolina
facility, and approximately $0.7 million of compensation expense associated with
a stock option grant.
Interest expense for the six months ended December 31, 1997, was $1.7
million, an increase of approximately $0.1 million over the comparable six month
period in 1996.
12
<PAGE>
Income tax benefits of $3.0 million and $0.1 million resulted from pre-tax
losses of $7.7 million and $0.4 million for the six months ended December 31,
1997, and 1996, respectively.
An extraordinary charge for debt expense related to the early retirement of
debt of $553 ($892 net of an income tax benefit of $339) was recognized during
the six months ended December 31, 1997. There was no extraordinary charge during
the six months ended December 31, 1996.
FISCAL YEAR ENDED JUNE 30, 1997 VERSUS FISCAL YEAR ENDED JUNE 30, 1996
Net sales for the fiscal year ended June 30, 1997 were $80.8 million versus
$59.0 million for the fiscal year ended June 30, 1996, an increase of $21.8
million or 36.9%. This increase resulted from higher sales of component
packages, enclosures and boxes and feeder housings to Deere, as well as higher
sales of in-store display fixtures. Year over year, combined sales to Deere and
Caterpillar locations increased slightly as a percent of total net sales from
85% to 87%.
The gross margin achieved in the year ended June 30, 1997 was 12.7% compared
to 15.2% in the prior year. This decline resulted from expenses associated with
the start-up of our Apex, North Carolina facility, a write-off of $1.9 million
of intangible assets, and a $0.9 million downward adjustment of the value of
excess inventory. The write-off of intangible assets resulted from a
reassessment of their future benefit to us in consideration of our growth, our
continuous design changes to existing products, our continuous factory
rearrangements and the opening of our Apex, North Carolina facility. The effect
of these expenses and adjustments was partly offset by increased productivity at
our Peoria and Morton, Illinois facilities, improved labor efficiency and better
material use stemming from investments in production technology, including laser
cutting equipment. New products manufactured for Deere required higher material
content and contributed to lower labor and overhead costs.
General and administrative expenses for the year ended June 30, 1997
amounted to $7.0 million (or 8.7% of net sales), an increase of $2.1 million or
42.9% over the year earlier period. The primary component of this increase was a
charge of $1.7 million (versus $140,000 in the earlier period) due to increased
payments under our employee incentive programs. During the year, we began making
payments under a new incentive compensation program for all employees and
increased bonuses to management. We expect that approximately $1.5 million of
these incentive program expenses will be recurring annually, and if our
performance improves these expenses will increase, although at a substantially
lower rate than that experienced in the year ended June 30, 1997.
Interest expense in the year ended June 30, 1997 amounted to $3.3 million
representing a nominal decrease from the earlier amount.
Income taxes for the year ended June 30, 1997 decreased 98.8% from the prior
fiscal year reflecting the reduction of earnings before taxes, primarily as a
result of the write-off and adjustments described above. Net earnings decreased
by 98.8% from those realized in the prior fiscal year.
FINANCIAL POSITION AND LIQUIDITY
MORTON
Historically, we have funded our business with cash generated from
operations and borrowings under revolving credit and term loan facilities. In
the years ended June 30, 1996 and June 30, 1997; the six months ended December
31, 1997; and the year ended December 31, 1998; we generated cash from operating
activities of $3.8 million, $5.1 million, $1.3 million and $2.0 million,
respectively. The decrease in cash from operating activities for the six months
ended December 31, 1997 resulted from a net loss in the period compared to net
income in the other periods. Our capital expenditures for the years ended June
30, 1996 and June 30, 1997; the six months ended December 31, 1997; and the year
ended December 31, 1998 were $2.1 million, $5.7 million, $5.6 million, and $10.3
million, respectively. These capital expenditures were principally for additions
to improve or maintain our manufacturing capacity and efficiency. $3.3 million
of the increase in capital expenditures for the six months ended December 31,
1997 was due to leasehold
13
<PAGE>
improvements and equipment costs for our Apex, North Carolina facility and costs
of an addition to our Morton, Illinois facility.
In 1998, we:
- acquired Carroll George for $8.1 million in cash, including the payment of
all revolving credit and term loan debt of Carroll George;
- acquired B&W Metal Fabricators, Inc. for $8.5 million consisting of $4.9
million in cash and the balance in the form of unsecured notes payable;
- acquired Mid-Central Plastics for $23.8 million in cash, including the
payment of all revolving credit and term loan debt of Mid-Central
Plastics; and
- acquired assets of SMP Steel Corporation for $2.2 million in cash.
In 1998, we entered into a new credit agreement with Harris Trust and
Savings Bank, as agent. The credit agreement is a $90 million facility with
borrowing availability determined based on certain financial performance
measures. We used borrowings under the facility:
- to refinance our then existing indebtedness;
- to finance acquisitions; and
- for working capital and other general corporate purposes.
Following the consummation of the Worthington and Midland acquisitions, our
liquidity requirements will consist primarily of working capital needs and
capital expenditures, required payments of principal and interest on our
indebtedness. We estimate that our capital expenditures in 1999 will total
approximately $11 million of which $1 million will be for machining and turning
centers, $3 million will be for presses and lasers and the remainder will be for
normal maintenance items. If the business acquired in the Midland acquisition
generates incremental income before interest, income taxes, depreciation and
amortization less capital expenditures for 1999 and 2000 in excess of the
related level for 1998, additional payments will be due to the seller of
Midland. We estimate that these payments could be up to $2.0 million, and we
expect to make these payments with cash generated from our operations or credit
agreement borrowings.
Closing of the Worthington and Midland acquisitions is subject to, among
other things, our obtaining financing. We are pursuing negotiations with
financing sources with respect to new or additional credit arrangements or other
financing arrangements.
Following consummation of the Worthington and Midland acquisitions, and our
entry into a new credit arrangements or other financing arrangements and based
on our current level of operations and anticipated cost savings and operating
improvements, we believe our cash flow from operations, available cash and
available borrowings under our credit facility will be adequate to meet our
future liquidity needs for at least the next few years.
While we routinely enter into discussions with potential acquisition
candidates, no such discussions have progressed beyond the preliminary stages.
We expect that funding for future acquisitions may come from a variety of
sources, depending on the size and nature of the acquisition. There can be no
assurance that such additional capital sources will be available to us on terms
that we find acceptable, or at all.
YEAR 2000 READINESS
We rely upon computer hardware and software to maintain financial and
business records. All of our subsidiaries use computer and related technology in
their manufacturing processes, including embedded microprocessor technology. All
hardware, software and embedded technologies are susceptible to Year 2000
issues. Unresolved Year 2000 issues could make it difficult and costly for us
and our subsidiaries to conduct business.
14
<PAGE>
We have dedicated our information services staff to addressing various Year
2000 issues. In 1998 we used these personnel as well as outside consultants to
conduct assessments of our technology and recommend steps to attain Year 2000
readiness. These steps included establishing project milestones, testing and
certifying all micro-controllers, and upgrading or replacing business system
hardware, software and telephone equipment. Through December 31, 1998, we have
expended approximately $40,000 in our Year 2000 readiness effort. We believe
that our continuing efforts will achieve an acceptable level of Year 2000
readiness no later than October 31, 1999. Certain minor remedial efforts may
extend into 2000, but we do not believe that these efforts will adversely affect
our ability to conduct business in 2000. We believe that our additional Year
2000 expenditures will be approximately $350,000, with the more significant
costs relating to upgrading embedded microprocessor technology. We do not
believe that the total costs of Year 2000 readiness will be material to our
financial position or results of operations.
We are surveying our customers' and suppliers' Year 2000 readiness. Based on
responses received to date, there is no indication that our major customers and
suppliers will not be Year 2000 ready by the end of 1999. Our major customers
are large international corporations, and we are aware of their aggressive
efforts to become Year 2000 ready. We may choose from a broad range of suppliers
of our basic raw materials, and we believe that if one supplier proves not to be
Year 2000 ready, there will be others who are. If, however, these major
customers and suppliers do not become Year 2000 ready, or if other third parties
such as public utilities or financial institutions that serve us fail to achieve
readiness, we could experience material and adverse financial results.
Since we believe that we will be Year 2000 ready, and that our major
customers and suppliers will also be Year 2000 ready, we have not developed
contingency plans. If our beliefs prove incorrect or it otherwise becomes
evident that contingency plans are advisable, we will develop the appropriate
plans.
SEASONALITY
Our operating results vary significantly from quarter to quarter due to,
among other things, the purchasing schedules of our key customers. Our sales and
profits historically have been higher in the first half of the calendar year due
to our largest customers' preparation in the first two quarters for increased
demand during the warmer months of the year.
IMPACT OF NEW ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities" which requires costs of start-up activities and organization costs
to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998, with initial application reported as the cumulative
effect of a change in accounting principle. Our adoption of this statement will
result in a cumulative effect charge of $0.8 million, net of income tax
benefits, in the first quarter of 1999.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995: This Form 10-K contains forward looking statements (within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934), including, but not limited to, statements related to
Morton's beliefs, expectations, or intentions. These statements involve risk and
uncertainties that may cause Morton's actual results to differ significantly
from those expected, suggested, or projected. Factors that could contribute to
such differences include, but are not limited to, competition with other
fabricators; the risks associated with Morton's acquisition strategy, including
unanticipated problems, difficulties in integrating acquired businesses,
diversion of management's attention from daily operations, possible increased
interest costs, and possible adverse effects on earnings resulting from
increased goodwill amortization; introduction of new technologies that require
significant capital expenditures; and general economic and business conditions.
15
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes primarily as a result of our line of
credit and long-term debt used for maintaining liquidity, funding capital
expenditures and expanding our operations. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flow and to lower overall borrowing costs. To achieve our objectives, we have
entered into a financing agreement with a group of banks which provides for term
loans of up to $55,000 and a revolving credit facility of $35,000. Interest is
based on either LIBOR or our lead bank's prime rate plus an applicable margin
which will vary depending on certain financial ratios achieved by us. We have
also entered into two interest rate swap agreements, as required by our
financing arrangement, to limit the effect of increases in the interest rates on
half of our floating rate term debt. We do not enter into interest rate
transactions for speculative purposes. Under the swap agreements, which expire
May 31, 2003 to June 30, 2003, the LIBOR interest rate component of the interest
rate is limited to 5.875% on half of our $53,800 term loans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Report of KPMG LLP, Independent Auditors........................................... 17
Report of Clifton Gunderson L.L.C., Independent Auditors........................... 18
Consolidated Balance Sheets as of December 31, 1997 and 1998....................... 19
Consolidated Statements of Operations for each of the years in the two years ended
June 30, 1997, the six months ended December 31, 1997 and the year ended December
31, 1998......................................................................... 20
Consolidated Statements of Stockholders' Equity (Deficit) for each of the years in
the two years ended June 30, 1997, the six months ended December 31, 1997 and the
year ended December 31, 1998..................................................... 21
Consolidated Statements of Cash Flows for each of the years in the two years ended
June 30, 1997, the six months ended December 31, 1997 and the year ended December
31, 1998......................................................................... 22
Notes to Consolidated Financial Statements......................................... 23
Schedule II--Valuation and Qualifying Accounts for each of the years in the two
years ended June 30, 1997, the six months ended December 31, 1997 and the year
ended December 31, 1998.......................................................... 40
</TABLE>
16
<PAGE>
REPORT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Morton Industrial Group, Inc.:
We have audited the accompanying consolidated balance sheet of Morton
Industrial Group, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. In connection with our audit of the consolidated
financial statements, we also have audited the 1998 financial statement schedule
as listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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 provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Morton
Industrial Group, Inc. and Subsidiaries as of December 31, 1998, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. Also in our opinion, the related
1998 financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Indianapolis, Indiana
February 22, 1999
17
<PAGE>
REPORT OF CLIFTON GUNDERSON L.L.C., INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Morton Industrial Group, Inc.:
We have audited the accompanying consolidated balance sheet of Morton
Industrial Group, Inc. and Subsidiaries (formerly Morton Metalcraft Holding Co.
and Subsidiaries) as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the two year period ended June 30, 1997, and the six months
ended December 31, 1997. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule for
the years ended June 30, 1996 and 1997, and the six months ended December 31,
1997 as listed in the accompanying index. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Morton
Industrial Group, Inc. and Subsidiaries as of December 31, 1997, and the results
of their operations and their cash flows for each of the years in the two year
period ended June 30, 1997, and for the six months ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the years ended June 30, 1996 and
1997, and the six months ended December 31, 1997, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
Clifton Gunderson L.L.C.
Peoria, Illinois
February 4, 1998
18
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................... $ 138 $ 1,125
Trade accounts receivable, less allowance for doubtful accounts of $100
in 1997 and $314 in 1998............................................. 7,668 15,890
Inventories............................................................ 7,510 14,483
Prepaid expenses....................................................... 815 1,263
Refundable income taxes................................................ 2,060 1,040
Deferred income taxes.................................................. 70 1,900
--------- ---------
Total current assets................................................. 18,261 35,701
--------- ---------
Tax escrow funds......................................................... -- 1,605
Note receivable stockholder.............................................. 250 --
Property, plant, and equipment, net...................................... 18,813 45,644
Intangible assets, at cost, less accumulated amortization................ 1,950 13,132
Deferred income taxes.................................................... 114 4,646
--------- ---------
$ 39,388 $ 100,728
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to bank................................................... $ 6,740 $ 11,700
Current installments of long-term debt................................. 2,390 5,311
Accounts payable....................................................... 11,892 16,995
Accrued expenses....................................................... 8,554 3,977
Income taxes payable................................................... -- 160
--------- ---------
Total current liabilities............................................ 29,576 38,143
Long-term debt, excluding current installments........................... 23,364 53,281
Other liabilities........................................................ -- 2,436
--------- ---------
Total liabilities.................................................... 52,940 93,860
--------- ---------
Stockholders' equity (deficit):
Class A common stock, $.01 par value. Authorized 9,159,257 shares in
1997 and 20,000,000 shares in 1998; issued and outstanding 5,066,665
shares in 1997 and 3,866,944 shares in 1998.......................... 51 39
Class B common stock, convertible, $.01 par value. Authorized, issued
and outstanding 100,000 shares in 1997 and 200,000 shares in 1998.... 1 2
Additional paid-in capital............................................. 1,203 19,937
Retained earnings (deficit)............................................ (2,037) (13,110)
Treasury stock, 3,222,221 shares, at cost in 1997...................... (12,770) --
--------- ---------
Total stockholders' equity (deficit)................................. (13,552) 6,868
Commitments (Note 9)
--------- ---------
$ 39,388 $ 100,728
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
YEAR ENDED DECEMBER DECEMBER
JUNE 30, 31, 31,
-------------------- ----------- -----------
1996 1997 1997 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................ $ 59,006 $ 80,762 $ 46,598 $ 151,196
Cost of sales.................................... 50,049 70,541 41,932 129,740
--------- --------- ----------- -----------
Gross profit................................. 8,957 10,221 4,666 21,456
--------- --------- ----------- -----------
Operating expenses:
Selling expenses............................... 1,529 1,832 1,202 4,311
Administrative expenses........................ 3,371 5,171 9,458 10,188
--------- --------- ----------- -----------
Total operating expenses..................... 4,900 7,003 10,660 14,499
--------- --------- ----------- -----------
Operating income (loss)...................... 4,057 3,218 (5,994) 6,957
--------- --------- ----------- -----------
Other income (expense):
Interest income................................ 7 15 9 59
Interest expense............................... (3,297) (3,266) (1,737) (4,779)
Other.......................................... 194 45 46 261
--------- --------- ----------- -----------
Total other income (expense)................. (3,096) (3,206) (1,682) (4,459)
--------- --------- ----------- -----------
Earnings (loss) before income taxes and
extraordinary charge....................... 961 12 (7,676) 2,498
Income tax expense (benefit)..................... 424 5 (3,031) 415
--------- --------- ----------- -----------
Earnings (loss) before extraordinary
charge..................................... 537 7 (4,645) 2,083
Extraordinary charge for early retirement of
debt, net of income tax benefit of $339 and
$257........................................... -- -- 553 419
--------- --------- ----------- -----------
Net earnings (loss).......................... $ 537 $ 7 $ (5,198) $ 1,664
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Earnings (loss) per share--basic:
Earnings (loss) before extraordinary charge.... $ .28 -- $ (2.39) $ .52
Extraordinary charge........................... -- -- (.28) (.11)
--------- --------- ----------- -----------
Net earnings (loss)............................ $ .28 -- $ (2.67) $ .41
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Earnings (loss) per share--diluted:
Earnings (loss) before extraordinary charge.... $ .16 -- $ (2.39) $ .45
Extraordinary charge........................... -- -- (.28) (.09)
--------- --------- ----------- -----------
Net earnings (loss)............................ $ .16 -- $ (2.67) $ .36
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------ ---------------------- ADDITIONAL RETAINED
SHARES SHARES PAID-IN EARNINGS TREASURY
ISSUED AMOUNT ISSUED AMOUNT CAPITAL (DEFICIT) STOCK
----------- ----------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995................. 5,066,665 $ 51 100,000 $ 1 $ 458 $ 2,617 $ (12,770)
Net earnings for the year............ -- -- -- -- -- 537 --
----------- --- --------- --- ----------- ---------- ----------
Balance, June 30, 1996................. 5,066,665 51 100,000 1 458 3,154 (12,770)
Net earnings for the year............ -- -- -- -- -- 7 --
----------- --- --------- --- ----------- ---------- ----------
Balance, June 30, 1997................. 5,066,665 51 100,000 1 458 3,161 (12,770)
Net loss for the six months.......... -- -- -- -- -- (5,198) --
Issuance of stock options............ -- -- -- -- 745 -- --
----------- --- --------- --- ----------- ---------- ----------
Balance, December 31, 1997............. 5,066,665 51 100,000 1 1,203 (2,037) (12,770)
Cancellation of treasury shares...... (3,222,221) (33) -- -- -- (12,737) 12,770
MLX Corp. merger..................... 1,907,500 19 100,000 1 17,849 -- --
Net income for the year.............. -- -- -- -- -- 1,664 --
Stock options exercised.............. 115,000 2 -- -- 885 -- --
----------- --- --------- --- ----------- ---------- ----------
Balance, December 31, 1998............. 3,866,944 $ 39 200,000 $ 2 $ 19,937 $ (13,110) $ --
----------- --- --------- --- ----------- ---------- ----------
----------- --- --------- --- ----------- ---------- ----------
<CAPTION>
TOTAL
----------
<S> <C>
Balance, June 30, 1995................. $ (9,643)
Net earnings for the year............ 537
----------
Balance, June 30, 1996................. (9,106)
Net earnings for the year............ 7
----------
Balance, June 30, 1997................. (9,099)
Net loss for the six months.......... (5,198)
Issuance of stock options............ 745
----------
Balance, December 31, 1997............. (13,552)
Cancellation of treasury shares...... --
MLX Corp. merger..................... 17,869
Net income for the year.............. 1,664
Stock options exercised.............. 887
----------
Balance, December 31, 1998............. $ 6,868
----------
----------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
-------------------- ------------- ------------
1996 1997 1997 1998
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................... $ 537 $ 7 $ (5,198) $ 1,664
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization of plant and equipment........ 1,339 1,541 1,094 4,698
Other amortization.......................................... 917 370 185 683
Write-off of intangible assets.............................. -- 1,854 552 676
Compensation expense from issuance of stock options......... -- -- 745 --
Increase (decrease) in allowance for doubtful accounts...... -- 30 60 --
(Decrease) increase in deferred income taxes................ 180 312 (2,530) (517)
(Gain) loss on sale of equipment............................ (144) (18) -- 17
Changes in current assets and liabilities, excluding effects
of acquisitions:
Decrease (increase) in accounts receivable................ (236) (2,907) 77 (531)
Decrease (increase) in inventories........................ (348) 874 495 (689)
Decrease (increase) in prepaid expenses................... (26) 154 6 7
Decrease (increase) in refundable income taxes............ -- (912) (1,148) 1,267
Increase in accounts payable.............................. 1,684 3,167 1,458 2,070
Increase (decrease) in accrued expenses and other......... (120) 671 5,481 (7,312)
--------- --------- ------------- ------------
Net cash provided by (used in) operating activities..... 3,783 5,143 1,277 2,035
--------- --------- ------------- ------------
Cash flows from investing activities:
Capital expenditures.......................................... (2,142) (5,707) (5,571) (10,259)
Proceeds from sale of equipment............................... 215 135 -- 11
Merger with MLX Corp.......................................... -- -- -- 16,241
Acquisitions, net of cash acquired............................ -- -- -- (39,718)
Increase in intangible assets................................. (676) -- -- (1,125)
Increase in note receivable--stockholder...................... (250) -- -- --
Increase in tax escrow........................................ -- -- -- (71)
Repayment of note receivable--stockholder..................... -- -- 18 596
--------- --------- ------------- ------------
Net cash used in investing activities................... (2,853) (5,572) (5,553) (34,325)
--------- --------- ------------- ------------
Cash flows from financing activities:
Net borrowings (repayments) notes payable to bank............. (500) 661 5,074 4,960
Proceeds from issuance of long-term debt...................... -- -- -- 55,000
Principal payments on long-term debt and capital leases....... (226) (332) (188) (26,912)
Debt issuance costs........................................... -- -- (676) (658)
Proceeds from issuance of common stock........................ -- -- -- 887
--------- --------- ------------- ------------
Net cash provided by (used in) financing activities..... (726) 329 4,210 33,277
--------- --------- ------------- ------------
Net increase (decrease) in cash................................. 204 (100) (66) 987
Cash at beginning of period..................................... 100 304 204 138
--------- --------- ------------- ------------
Cash at end of period........................................... $ 304 $ 204 $ 138 $ 1,125
--------- --------- ------------- ------------
--------- --------- ------------- ------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................... $ 3,279 $ 3,284 $ 1,737 $ 5,722
--------- --------- ------------- ------------
--------- --------- ------------- ------------
Income taxes................................................ $ 493 $ 687 $ 308 $ 543
--------- --------- ------------- ------------
--------- --------- ------------- ------------
Noncash financing and investing activities:
Capital lease obligations incurred for machinery and
equipment................................................... $ 480 $ 285 -- --
--------- --------- ------------- ------------
--------- --------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Morton Industrial Group, Inc. and subsidiaries, formerly Morton
Metalcraft Holding Co. and subsidiaries ("MMC"), is a contract
manufacturer and supplier of high-quality fabricated sheet metal and
plastic components and subassemblies for construction, agricultural, and
industrial equipment manufacturers located primarily in the Midwestern
and Southeastern United States. Sales for the year ended December 31,
1998, were distributed as follows: construction--45%, agricultural--31%,
and industrial--24%. The Company's raw materials are readily available,
and the Company is not dependent on a single supplier or only a few
suppliers.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Morton Industrial Group, Inc. (the Company) and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation. The Company changed its fiscal year end
from June 30 to December 31 effective December 31, 1997.
(C) USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(D) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method for all inventories.
(E) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost less accumulated
depreciation. Equipment under capital leases is stated at the lower of
the net present value of the minimum lease payments at the beginning of
the lease term or fair value at the inception of the lease.
Depreciation of plant and equipment is calculated over the estimated
useful lives of the respective assets on the straight-line method. The
equipment held under capital leases is amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of
the asset.
(F) INTANGIBLE ASSETS
Intangible assets are recorded at cost and include goodwill, amortized
over 25 years; covenants not to compete, amortized over their contractual
periods which range from 3 to 10 years; debt issuance costs, amortized
over the term of the related loans; organizational costs, amortized over
20 years; and preproduction costs. Preproduction costs represent costs
incurred prior to the production of significant new products and include
labor and overhead relating to developing production lines. These costs
are then amortized over a three-year period. The Company's policy is to
continually evaluate whether later events and circumstances have occurred
that indicate the remaining useful life of the intangibles may warrant
revision or that the remaining balance of intangibles may not be
recoverable. Such evaluation is based on various analyses including cash
23
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
flow and profitability projections. If the sum of the expected future
undiscounted cash flows is less than the carrying amount, a loss is
recognized for the difference between the fair value and carrying amount
of the asset.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities" which requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998, with initial application
reported as the cumulative effect of a change in accounting principle.
Accordingly, adoption of the statement will result in a cumulative effect
charge of $822, net of income tax benefits, in the first quarter of 1999.
(G) ACCOUNTS PAYABLE
The Company utilizes a cash management system which incorporates a zero
balance disbursement account funded as checks are presented for payment.
Accounts payable includes checks issued in excess of book balance of
$2,345 and $2,703 at December 31, 1997 and 1998, respectively.
(H) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(I) STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise
price. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
(J) REVENUE RECOGNITION
Revenue from sales is recognized when the goods are shipped to the
customer.
(K) INTEREST RATE SWAPS
As required by its financing arrangement, the Company enters into
interest rate swap agreements to limit the effect of increases in the
interest rates on any floating rate debt. The difference between the
floating rate on the Company's debt and the rate on the swap agreements
is accrued as interest rates change and is recorded in interest expense.
During 1998, the Company entered into two swap agreements, expiring May
31, 2003 to June 30, 2003, with an initial aggregate notional amount of
$27,500. The effect of these agreements is to limit the LIBOR interest
rate
24
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
component to 5.87% on half of the Company's $53,800 term loans. As a
result of these swap agreements interest expense was increased by $49 in
1998.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the recorded value of cash, accounts and notes
receivable, accounts payable and accrued expenses approximates fair value
because of the short maturity of these financial instruments. The Company
believes the recorded value of notes payable and long-term debt
approximates fair value because their respective interest rates fluctuate
with market rates or approximate current market rates.
The fair value of interest rate swaps are the estimated amounts that the
Company would receive or pay to terminate the agreements at the reporting
date, taking into account current interest rates and the current
creditworthiness of the counterparties. At December 31, 1998, the Company
estimates it would have paid $810 to terminate the agreements.
(M) EARNINGS (LOSS) PER SHARE
Earnings (loss) 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, 1997. Amounts
reported as earnings (loss) per share for each of the two years in the
period ended June 30, 1997, for the six months ended December 31, 1997
and for the year ended December 31, 1998 reflect the earnings available
to stockholders for the year divided by the weighted average number of
Class A and Class B common shares outstanding during the period.
(2) MERGERS AND ACQUISITIONS
(A) MERGER WITH MLX CORP.
On January 20, 1998, Morton Metalcraft Holding Co. merged (the "Merger")
with MLX Corp. ("MLX") with MLX being the surviving corporation. MLX
amended its Articles of Incorporation to change the corporate name of MLX
to Morton Industrial Group, Inc.
The Merger, for financial accounting and reporting purposes, was treated
as a reverse merger with a shell company in accordance with generally
accepted accounting principles. The Merger was accounted for as though
the Company acquired MLX because (i) the Chairman and CEO of MMC
maintained voting control in the surviving corporation; (ii) the Chairman
of the Board of Directors, CEO, and directors of the surviving
corporation will consist of individuals appointed by the Chairman and CEO
of MMC; (iii) the revenues, net earnings, and current market value of MMC
exceeded those of MLX; and (iv) the market value of the consideration
received by the former shareholders of MMC and former holders of options
and warrants for MMC common stock, including MLX common stock, MLX
options, and cash exceeded the market value of the securities to be
retained by the shareholders of MLX common stock.
The historical financial statements of MMC, after the date of the Merger,
became the historical financial statements of Morton Industrial Group,
Inc. as the result of the reverse merger.
25
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
The Merger was accounted for as a capital transaction by the Company.
Accordingly, the equity of MLX, including recognized tax benefits, net of
the repurchase of shares from certain MMC shareholders, was recorded as
follows:
<TABLE>
<S> <C>
Pre-merger equity of MLX Corp. (consisting
principally of cash)............................ $ 34,789
Recognition of deferred tax asset................. 3,071
Repurchase of MMC shares, options and warrants for
cash............................................ (19,991)
---------
Effect of merger on equity........................ $ 17,869
---------
---------
</TABLE>
Included in accrued expenses and other liabilities at December 31, 1997,
are accrued bonuses in the amount of $4,000 and various accrued
consulting and legal expenses in the amount of $1,000 related to the
Merger.
(B) ACQUISITION OF CARROLL GEORGE, INC.
On March 30, 1998, the Company acquired all of the outstanding shares of
common stock of Carroll George, Inc. a manufacturer of plastic components
located in Northwood, Iowa. The Company paid a total purchase price of
$8.1 million, including payment of all of Carroll George, Inc.'s
revolving credit and term loan debt. This acquisition was accounted for
as a purchase and the total cost in excess of net assets acquired of $0.2
million is being amortized on a straight-line basis over 25 years.
(C) ACQUISITION OF B & W METAL FABRICATORS, INC.
On April 8, 1998, the Company acquired all of the outstanding shares of
common stock of B & W Metal Fabricators, Inc., a manufacturer of
fabricated sheet metal located in Welcome, North Carolina, for $8.5
million, including the retirement of B & W indebtedness. The purchase
consideration included cash payments of $4.9 million and the balance in
the form of unsecured subordinated notes. The subordinated notes bear
interest at 7.0% per annum, discounted to yield 10.0%, and are payable in
40 equal quarterly installments beginning July 8, 1998. The acquisition
was accounted for as a purchase and the entire cost was allocated to net
assets acquired.
(D) ACQUISITION OF MID-CENTRAL PLASTICS, INC.
On May 29, 1998, the Company acquired all of the outstanding shares of
common stock of Mid-Central Plastics, Inc., a manufacturer of plastic
components located in West Des Moines, Iowa. The Company paid a total
purchase price of $23.8 million, including payment of all of Mid-Central
Plastics, Inc.'s revolving credit and term loan debt. The acquisition was
accounted for as a purchase and the total cost in excess of net assets
acquired of $9.5 million is being amortized on a straight line basis over
25 years.
(E) ACQUISITION OF SMP STEEL CORPORATION
On June 1, 1998, the Company acquired substantially all of the assets of
SMP Steel Corporation, a manufacturer of fabricated sheet metal located
in Honea Path, South Carolina. The total
26
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
purchase price was $2.2 million. The acquisition was accounted for as a
purchase and the entire cost was allocated to the net assets acquired.
The results of operations of the above merged and acquired companies are
included in the accompanying financial statements since the date of the
respective merger or acquisition.
The following unaudited pro forma summary presents the Company's
consolidated results of operations for the years ended December 31, 1998
and 1997, as if the merger and acquisitions had occurred at the beginning
of each respective year:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Net sales.................................... $ 156,391 $ 175,757
------------ ------------
------------ ------------
Net earnings (loss).......................... $ (3,871) $ 1,929
------------ ------------
------------ ------------
Net earnings (loss) per share--basic......... $ (1.99) $ .48
------------ ------------
------------ ------------
Net earnings (loss) per share--diluted....... $ (1.99) $ .42
------------ ------------
------------ ------------
</TABLE>
(3) INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Finished goods....................................... $ 2,588 $ 5,023
Work in process...................................... 1,573 2,299
Raw materials........................................ 3,349 7,161
--------- ---------
Total inventories................................ $ 7,510 $ 14,483
--------- ---------
--------- ---------
</TABLE>
27
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(4) NOTE RECEIVABLE--STOCKHOLDER
At December 31, 1997, the Company had a note receivable from a stockholder
in the amount of $250. The note, which was unsecured, accrued interest at 5.88%
and was paid in full during 1998.
(5) PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment, including assets held under
capital leases as described in Note 9 is as follows:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
LIVES --------------------
(IN YEARS) 1997 1998
------------- --------- ---------
<S> <C> <C> <C>
Land and land improvements................................. -- $ 869 $ 2,143
Buildings and leasehold improvements....................... 15-39 4,915 12,445
Machinery and vehicles..................................... 5-12 14,759 33,475
Tooling.................................................... 3 5,028 6,340
Office equipment........................................... 5-10 2,507 4,520
Construction in progress................................... -- -- 414
--------- ---------
28,078 59,337
Less accumulated depreciation.............................. 9,265 13,693
--------- ---------
Property, plant and equipment, net......................... $ 18,813 $ 45,644
--------- ---------
--------- ---------
</TABLE>
(6) INTANGIBLE ASSETS
A summary of intangible assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Goodwill................................................................. $ 1,200 $ 11,228
Organization costs....................................................... 374 423
Covenants not to compete................................................. 2,136 2,791
Preproduction costs...................................................... -- 1,125
Debt issuance costs...................................................... 676 658
--------- ---------
4,386 16,225
Less accumulated amortization............................................ 2,436 3,093
--------- ---------
Net intangibles...................................................... $ 1,950 $ 13,132
--------- ---------
--------- ---------
</TABLE>
During the year ended June 30, 1997, and the six months ended December 31,
1997, intangible assets with a net value of approximately $1,854 and $552,
respectively, were written off due to the determination that these intangible
assets no longer had value.
28
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(7) NOTE PAYABLE TO BANK
In January 1998, the Company entered into a revolving credit facility. The
Company subsequently replaced that arrangement in May 1998 with a new revolving
credit facility with a group of banks. The revolving credit agreement permits
the Company to borrow up to a maximum of $35,000. As discussed in Note 8,
borrowings under the revolving credit facility are limited by certain financial
ratios. The agreement requires payment of a quarterly commitment fee of .25% of
the average daily unused portion of the revolving credit facility. Interest is
due monthly and is based on either LIBOR or the Bank's prime rate plus an
applicable margin which will vary depending on certain financial ratios achieved
by the Company (7.54% at December 31, 1998).
Prior to the refinance in January 1998, the Company had a revolving credit
agreement which provided up to $9,000 in revolving credit, limited to 85% of
qualified accounts receivable and 40-60% of eligible inventory (up to a maximum
borrowing of $5,000 for inventory). The interest on the outstanding borrowings
was due on the first day of each month at 0.5% over the bank's base rate (9.00%
at December 31, 1997).
At December 31, 1997 and 1998, the Company had $6,740 and $11,700,
respectively, outstanding and $1,500 and $3,053, respectively, available under
its revolving credit facilities.
(8) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Note payable, bank, with variable rate interest (7.47% as of December
31, 1998), due in various quarterly payments with the balance due May
30, 2003.............................................................. $ -- $ 24,000
Note payable, bank, with variable rate interest (7.97% as of December
31, 1998), due in various quarterly payments with the balance due June
30, 2005.............................................................. -- 29,750
Subordinated note payable with interest payable at 7.00%, discounted
$393 to yield 10.00%, due in quarterly payments with balance due April
8, 2008............................................................... -- 3,128
Note payable, bank, with interest payable at 8.5%, due in monthly
payments with the balance due December 1, 2002........................ -- 365
Note payable, bank, with interest payable at 7.85%, due in monthly
payments with the balance due May 1, 2001............................. -- 251
Note payable, electric cooperative, non-interest bearing, due in monthly
payments with the balance due November 1, 2006........................ -- 356
Note payable with interest payable at 11.50%, paid in full as of January
20, 1998.............................................................. 25,000 --
Capital lease obligations............................................... 416 278
Other................................................................... 338 464
--------- ---------
Total............................................................... 25,754 58,592
Less current installments............................................... 2,390 5,311
--------- ---------
Long-term debt, less current installments........................... $ 23,364 $ 53,281
--------- ---------
--------- ---------
</TABLE>
29
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(8) LONG-TERM DEBT (CONTINUED)
As discussed in Note 7, in May 1998, the Company entered into a financing
arrangement with a group of banks which provides for term loans of up to $55,000
and a revolving credit facility of up to $35,000. The maximum borrowings under
the financing arrangement are limited to four times the Company's earnings
before interest, taxes, depreciation and amortization for the most recent four
quarters. The agreement is secured by a first lien on all of the Company's
accounts receivable, inventories, equipment and various other assets. Interest
is due quarterly and is based on either LIBOR or the Bank's prime rate plus an
applicable margin which will vary depending on certain financial ratios achieved
by the Company. In connection with an amendment to the financing arrangement to
revise certain financial covenants, the applicable margin was increased 1.00%
effective January 1, 1999.
The debt agreements contain restrictions on capital expenditures, incurring
additional debt or liens, making investments, mergers and acquisitions, selling
assets or making payments such as dividends or stock repurchases. The revolving
credit agreement also contains various financial covenants.
Under the most restrictive covenant in any agreement, no amount was
available for payment of dividends at December 31, 1997 and 1998.
The aggregate amounts of long-term debt maturities and principal payments
for each of the five years subsequent to December 31, 1998 and thereafter are as
follows:
<TABLE>
<S> <C>
Fiscal year ending:
1999............................................................. $ 5,169
2000............................................................. 6,090
2001............................................................. 6,057
2002............................................................. 6,975
2003............................................................. 11,537
Thereafter....................................................... 22,486
---------
$ 58,314
---------
---------
</TABLE>
In connection with replacement of its debt arrangements, the Company wrote
off debt issuance costs of $552 and $676 during the six months ended December
31, 1997 and the year ended December 31, 1998, respectively. Additionally, the
Company incurred debt termination fees of $340 during the six months ended
December 31, 1997. These early terminations of the Company's debt agreements
resulted in extraordinary charges of $553 and $419, after income tax benefit,
for the six months ended December 31, 1997, and year ended December 31, 1998,
respectively.
(9) LEASES
The Company is obligated under various capital leases for certain machinery.
At December 31, 1998, the gross amount of equipment and related amortization
recorded under capital leases was as follows:
<TABLE>
<S> <C>
Machinery............................................................ $ 691
Less accumulated amortization........................................ 153
---------
$ 538
---------
---------
</TABLE>
30
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(9) LEASES (CONTINUED)
Amortization of assets held under capital leases is included with
depreciation expense.
The present value of future minimum capital lease payments at December 31,
1998 was as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999............................................................. $ 166
2000............................................................. 111
2001............................................................. 37
---------
Total minimum lease payments................................... 314
Less amount representing interest (from 9.5 to 10.2%).............. 36
---------
Present value of net minimum capital lease payments............ 278
Less current installments of obligations under capital leases...... 142
---------
Obligations under capital leases, excluding current
installments................................................. $ 136
---------
---------
</TABLE>
The Company also has operating leases for three of its plants, certain
warehouse space, and manufacturing and computer equipment. Rental expense for
operating leases was $1,328, 2,061, $1,452, and $4,254 for the years ended June
30, 1996 and 1997, six months ended December 31, 1997, and year ended December
31, 1998, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1998
are:
<TABLE>
<S> <C>
Year ending December 31:
1999............................................................. $ 4,480
2000............................................................. 4,240
2001............................................................. 3,875
2002............................................................. 3,613
2003............................................................. 3,556
Thereafter......................................................... 7,398
---------
Total minimum lease payments................................... $ 27,162
---------
---------
</TABLE>
31
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(10) INCOME TAXES
Total income tax expense for the periods presented was allocated as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- --------------------
1996 1997 1997 1998
--------- ----- --------- ---------
<S> <C> <C> <C> <C>
Income before extraordinary item............................ $ 424 $ 5 $ (3,031) $ 415
Extraordinary item.......................................... -- -- (339) (257)
Stockholders' equity, for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes........................................ -- -- -- (517)
--------- --- --------- ---------
$ 424 $ 5 $ (3,370) $ (359)
--------- --- --------- ---------
--------- --- --------- ---------
</TABLE>
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- --------- ---------
<S> <C> <C> <C>
Year ended June 30, 1996:
Federal...................................................... $ 224 $ 147 $ 371
State........................................................ 20 33 53
----- --------- ---------
$ 244 $ 180 $ 424
----- --------- ---------
----- --------- ---------
Year ended June 30, 1997:
Federal...................................................... $ (250) $ 254 $ 4
State........................................................ (57) 58 1
----- --------- ---------
$ (307) $ 312 $ 5
----- --------- ---------
----- --------- ---------
Six months ended December 31, 1997:
Federal...................................................... $ (508) $ (2,021) $ (2,529)
State........................................................ 7 (509) (502)
----- --------- ---------
$ (501) $ (2,530) $ (3,031)
----- --------- ---------
----- --------- ---------
Year ended December 31, 1998:
Federal...................................................... $ -- -- $ --
State........................................................ 415 -- 415
----- --------- ---------
$ 415 -- $ 415
----- --------- ---------
----- --------- ---------
</TABLE>
32
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(10) INCOME TAXES (CONTINUED)
Total income tax expense (benefit) attributable to earnings (loss) before
income taxes and extraordinary charge differed from the amounts computed by
applying the U.S. Federal corporate income tax rate of 34% for all periods to
earnings (loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Computed "expected" tax expense (benefit).................. $ 327 $ 4 $ (2,610) $ 849
State income taxes (benefit), net of Federal income tax
benefit (expense)........................................ 35 1 (331) 274
Amortization of goodwill................................... 20 20 10 102
Officer's life insurance................................... -- 16 8 19
Decrease in valuation allowance............................ -- -- -- (846)
Other, net................................................. 27 (36) (108) 17
--------- --- --------- ---------
Total income tax expense............................... $ 424 $ 5 $ (3,031) $ 415
--------- --- --------- ---------
--------- --- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1998, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Deferred tax assets attributable to:
Net operating loss and credit carry-forwards.......................... $ 2,348 $ 50,898
Accrued vacation pay.................................................. 137 301
Compensation expense from issuance of stock options................... 291 291
Reserves and other.................................................... 37 1,305
--------- ----------
Total gross deferred tax assets..................................... 2,812 52,795
Less valuation allowance............................................ -- (39,765)
--------- ----------
Net deferred tax assets............................................. 2,812 13,030
--------- ----------
Deferred tax liabilities attributable to:
Plant and equipment, principally due to differences in depreciation... (2,389) (6,132)
Recapture of inventory LIFO valuation for tax purposes................ (155) (117)
Excess of tax over book amortization of organization costs............ (84) (82)
Discount on debt for financial reporting purposes..................... -- (153)
--------- ----------
Total deferred tax liabilities...................................... (2,628) (6,484)
--------- ----------
Net deferred tax asset (liability).................................. $ 184 $ 6,546
--------- ----------
--------- ----------
</TABLE>
33
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(10) INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In order to fully realize
the recorded deferred tax asset, the Company will need to generate future
taxable income of approximately $17,000 prior to the expiration of the net
operating loss carryforwards in 2017. Based upon the level of historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at December 31, 1998. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
At December 31, 1998, the Company has net operating loss carryforwards for
Federal income tax purposes of $140,021 which are available to offset future
Federal taxable income, if any, through 2017.
(11) STOCKHOLDERS' EQUITY
The Company's capital stock consists of Class A and Class B common stock.
The Class A and Class B shares have the same rights and preferences, except that
the Class B shares guarantee the holders certain special voting rights. The
holders of the Class B common stock are ensured that the total votes available
to be cast by the holders, when combined with Class A common stock held, will be
at least 24% of the votes available to be cast by all holders of common stock.
The Board of Directors is also authorized to issue one or more series of
preferred stock, with the number of shares, dividend rate, voting rights,
redemption features and other rights to be determined by the Board of Directors.
(12) STOCK OPTION PLANS
In 1998, the Company adopted a stock option plan (the "Plan") pursuant to
which the Company's Board of Directors may grant stock options to officers and
key employees. The Plan authorizes grants of options to purchase up to 1,166,896
shares of authorized but unissued Class A common stock. Stock options are
granted with an exercise price equal to the stock's fair market value at the
date of grant. All stock options under the Plan have ten-year terms and vest and
become fully exercisable after three years from the date of grant. At December
31, 1998, there were 303,430 additional shares available for grant under the
Plan.
Prior to the Merger, the Company had a stock option plan under which key
officers and employees were granted options at prices equal to fair market value
of the stock on the date of grant. At December 31, 1997 and 1998, there were
667,677 and 602,862 options outstanding under the prior plan.
The per share weighted-average fair value of stock options granted during
1997 and 1998 was $16.50 and $7.56, respectively, on the date of grant using an
option-pricing model (excluding a volatility assumption) with the following
weighted-average assumptions: 1997-expected dividend yield 0%, risk-free
interest rate of 6%, and an expected life of 10 years; 1998--expected dividend
yield 0%, risk-free interest rate of 6%, and an expected life of 10 years.
34
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(12) STOCK OPTION PLANS (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the 1998 financial statements. On October 8, 1997, the Company granted options
to purchase 46,298 shares of the Company's Class A common stock to an officer of
the Company at an option price of $.90 per share. During the six months ended
December 31, 1997, the Company recognized compensation expense of $745 in
connection with this transaction. In addition, 46,298 of previously outstanding
options to purchase the Company's Class A common stock were canceled.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Net earnings (loss):
As reported............................................................. $ (5,198) $ 1,664
Pro forma............................................................... (5,210) 371
Diluted earnings (loss) per share:
As reported............................................................. $ (2.67) .36
Pro forma............................................................... (2.67) .08
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding at June 30, 1995, 1996 and 1997........................... 722,221 $ .120
Granted............................................................... 46,296 .900
Forfeited............................................................. (100,840) (.152)
Outstanding at December 31, 1997...................................... 667,677 .174
Merger with MLX Corp.................................................. 50,000 7.190
Issued................................................................ 863,466 16.953
Exercised............................................................. (115,000) (3.220)
---------- ---------
Outstanding at December 31, 1998...................................... 1,466,143 $ 10.057
---------- ---------
---------- ---------
</TABLE>
35
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(12) STOCK OPTION PLANS (CONTINUED)
The following is summary information about the Company's stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF SHARES PRICE EXPIRATION DATE
- ---------------- ------------- ---------------------
<S> <C> <C>
417,172 $ .108 August 31, 1999
69,697 .108 August 31, 2000
69,697 .216 July 13, 2002
46,296 .900 May 8, 2005
783,281 17.125 January 20, 2008
50,000 16.563 July 13, 2008
30,000 13.125 September 2, 2008
- ----------------
1,466,143
- ----------------
- ----------------
</TABLE>
At December 31, 1997 and 1998, the number of options exercisable was 639,899
and 584,344, respectively, and the weighted-average exercise price of those
options was $.143 and $.159, respectively.
(13) CONCENTRATION OF SALES
Sales to customers in excess of 10% of total net sales for the years ended
June 30, 1996 and 1997, six months ended December 31, 1997, and for the year
ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CUSTOMER A CUSTOMER B
---------------- ----------------
<S> <C> <C>
Periods ended:
June 30, 1996..................................................... 53% 34%
June 30, 1997..................................................... 39% 46%
December 31, 1997................................................. 34% 53%
December 31, 1998................................................. 28% 51%
</TABLE>
Trade accounts receivable with these customers totaled $5,027 and $9,997 at
December 31, 1997 and 1998, respectively.
(14) EMPLOYEE PARTICIPATION PLAN
The Morton Metalcraft Co. Employee Participation Plan allows substantially
all employees to defer up to 15 percent of their income through payroll
deduction of pre-tax contributions under section 401(k) of the Internal Revenue
Code. The Company matches 25 percent of the first 6 percent of pre-tax income
contributed by each employee. Employees may also make contributions of after-tax
income. Additionally, the Company may make discretionary contributions to the
plan for the benefit of participating employees. Certain of the acquired
subsidiaries also had defined contribution plans which allow for employee
pre-tax contributions and employer matching and discretionary contributions. The
expense charged to operations related to defined contribution plans was $87,
$116, $70, and $458 for the years ended June 30, 1996 and 1997, six months ended
December 31, 1997, and the year ended December 31, 1998, respectively.
36
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(15) EARNINGS (LOSS) PER SHARE
The following reflects the reconciliation of the numerators and denominators
of the earnings (loss) per share and net earnings (loss) per share assuming
dilution computations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
-------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- -------------
<S> <C> <C> <C>
Basic earnings per share.............................. $ 537 1,944,444 $ .28
---
---
Effect of dilutive securities:
Stock options....................................... -- 699,086
Warrants............................................ -- 666,297
----- -------------
Diluted earnings per share........................ $ 537 3,309,827 $ .16
----- ------------- ---
----- ------------- ---
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
---------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ------------- -------------
<S> <C> <C> <C>
Basic earnings per share.............................. $ 7 1,944,444 $ --
---
---
Effect of dilutive securities:
Stock options....................................... -- 716,226
Warrants............................................ -- 666,571
--- -------------
Diluted earnings per share........................ $ 7 3,327,241 $ --
--- ------------- ---
--- ------------- ---
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1997
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -----------
<S> <C> <C> <C>
Basic loss per share.................................. $ (5,198) 1,944,444 $ (2.67)
-----------
-----------
Effect of dilutive securities......................... -- --
----------- -------------
Diluted loss per share............................ $ (5,198) 1,944,444 $ (2.67)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1998
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -----------
<S> <C> <C> <C>
Basic earnings per share.............................. $ 1,664 4,023,373 $ .41
-----------
-----------
Effect of dilutive securities -- 559,241
----------- -------------
Diluted loss per share............................ $ 1,664 4,582,614 $ .36
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
37
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(15) EARNINGS (LOSS) PER SHARE (CONTINUED)
Options to purchase 722,222 shares of Class A common stock at an average
price of $.17 per share and warrants to purchase 666,667 shares of Class A
common stock at $.002 per share were outstanding at December 31, 1997, but were
not included in the computation of diluted earnings per share because they were
anti-dilutive.
Options to purchase 722,222 shares of Class A common stock at an average
price of $.12 per share were outstanding at June 30, 1995, but were not included
in the computation of diluted earnings per share because they were
anti-dilutive.
(16) RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998, the Company paid $1,013 and $104
for merger and acquisition advisory services to two firms affiliated with
members of the Company's board of directors.
(17) SEGMENT REPORTING
Morton Industrial Group, Inc. has two reportable segments, contract metal
fabrication and contract plastic fabrication. The contract metal fabrication
segment provides full-service fabrication of parts and sub-assemblies for the
construction, agricultural, and industrial equipment industry. The contract
plastic fabrication segment provides full-service vacuum formed and
injection-molded parts and sub-assemblies for the construction, agricultural,
and industrial equipment industry. Prior to March 30, 1998, the Company operated
in only one reportable segment, contract metal fabrication.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
Morton Industrial Group, Inc. accounts for intersegment sales and transfers
as if the sales or transfers were to third parties, that is, at current market
prices, although these intersegment sales were insignificant in 1998.
Morton Industrial Group, Inc.'s reportable segments are strategic business
units that offer different products and services. They are managed separately
because each business requires different technology and production methods. Most
of the businesses were acquired as a unit, and most of the management at the
time was retained.
<TABLE>
<CAPTION>
CONTRACT CONTRACT
METAL PLASTIC
FABRICATION FABRICATION TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Revenues from external customers............................................ $ 116,333 $ 34,863 $ 151,196
Intersegment revenues....................................................... 20 20 40
Interest revenue............................................................ 35 24 59
Interest expense............................................................ 4,211 568 4,779
Depreciation and amortization............................................... 4,167 1,214 5,381
Segment operating profit.................................................... 5,624 1,333 6,957
Segment assets including intangible assets.................................. 48,724 52,004 100,728
Expenditures for segment fixed assets....................................... 7,832 2,427 10,259
</TABLE>
38
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
(18) SUBSEQUENT EVENTS (UNAUDITED)
On February 26, 1999, the Company entered into an asset purchase agreement
with Worthington Custom Plastics, Inc. to acquire three manufacturing facilities
located in the southeastern United States which produce plastic products for
construction, agricultural and industrial original equipment manufacturers.
Under the terms of the agreement, the Company will acquire the Worthington
assets for $25,000 in cash, non-voting shares of preferred stock of the Company
and 15% of the common stock of a newly formed subsidiary of the Company. The
transaction is conditioned on the obtaining of adequate financing for the
completion of the transaction. For the year ended December 31, 1998, the to be
acquired business reported sales of $105,000. The acquisition will be accounted
for as a purchase.
On February 26, 1999, the Company entered into an asset purchase agreement
to acquire the metal machining business of Midland Partners. The purchase price
is $7,545 cash and a $1,000 seller note with additional potential cash
consideration based on the incremental income before interest, income taxes,
depreciation and amortization less capital expenditures for 1999 and 2000, in
excess of the related level for 1998. The transaction is conditioned on the
obtaining of adequate financing for the transaction. For the year ended December
31, 1998 the to be acquired business reported sales of $16,500. The acquisition
will be accounted for as a purchase.
39
<PAGE>
MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1996........................ $ 10 -- -- -- $ 10
----- --- ----- --- -----
----- --- ----- --- -----
Year ended June 30, 1997........................ $ 10 $ 42 -- $ 12 $ 40
----- --- ----- --- -----
----- --- ----- --- -----
Six months ended December 31, 1997.............. $ 40 $ 60 -- -- $ 100
----- --- ----- --- -----
----- --- ----- --- -----
Year ended December 31, 1998.................... $ 100 -- $ 214* -- $ 314
----- --- ----- --- -----
----- --- ----- --- -----
</TABLE>
- ------------------------
* Represents the acquisition date allowance for doubtful accounts of
businesses acquired.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
INFORMATION ABOUT THE SELECTION OF OUR AUDITORS
SELECTION OF KPMG LLP (FEBRUARY 17, 1999)
On February 17, 1999, the Company's Board of Directors, acting upon the
recommendation of the Audit Committee of the Board, selected KPMG LLP ("KPMG")
to serve as the Company's independent accountants for the fiscal year ended
December 31, 1998, and the fiscal year ending December 31, 1999, and dismissed
Clifton Gunderson L.L.C. ("Clifton Gunderson") as independent accountants for
the Company. Clifton Gunderson had served as the independent accountants for
Morton (which merged with the Company on January 20, 1998) for the six months
ended December 31, 1997, and the fiscal years ended June 30, 1997 and 1996. On
April 14, 1998, as reported on Form 8-K dated April 16, 1998, and Form 8-K/A
dated April 22, 1998, our Board of Directors, acting upon the recommendation of
its Audit Committee selected Clifton Gunderson to serve as the Company's
independent accountants. The action of the Board of Directors on February 17,
1999, dismissing Clifton Gunderson and appointing KPMG reflected the Board's
determination that our recent and anticipated growth merited our selection of a
recognized national accounting firm rather than a smaller, regional firm.
During the period from April 14, 1998, to and including February 17, 1999,
with respect to the Company, and prior thereto with respect to Morton, including
the period from January 1, 1998, to April 14, 1998, the six months ended
December 31, 1997, and the fiscal years ended June 30, 1997 and 1996, Clifton
Gunderson's reports on the financial statements of Holding did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified in any way,
and no reports of Clifton Gunderson were qualified as to uncertainty, audit
scope, or accounting principles. (Clifton Gunderson issued no reports on the
financial statements of the Company during the period that began April 14, 1998,
and ended February 17, 1999.) During the same periods, neither we nor Morton had
any disagreements with Clifton Gunderson on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
During the period from April 14, 1998, to and including February 17, 1999, with
respect to us, and prior thereto with respect to Morton, including the period
from January 1, 1998, to April 14, 1998, the six months ended December 31, 1997,
and the fiscal years ended June 30, 1997 and 1996, Clifton Gunderson did not
advise us or Morton that:
- either did not have internal controls necessary for the development of
reliable financial statements;
- information had come to Clifton Gunderson's attention that led it to no
longer be able to rely on management's representations, or that made it
unwilling to be associated with the financial statements prepared by
management;
- Clifton Gunderson needed to expand significantly the scope of its audit,
or that information had come to Clifton Gunderson's attention that if
further investigated may (a) materially impact the fairness or reliability
of either: a previously issued audit report or the underlying financial
statements, or the subsequent to the date of the most recent financial
statements covered by an audit report, or (b) cause it to be unwilling to
rely on management's representations or be associated with our or Morton's
financial statements,
- information had come to Clifton Gunderson's attention that it concluded
materially impacted the fairness or reliability of either (a) a previously
issued audit report or the underlying financial statements, or (b) the
financial statements to be issued covering the fiscal period subsequent to
the date of the most recent financial statements covered by an audit
report.
During the period from April 14, 1998, to and including February 17, 1999,
with respect to us, and prior thereto with respect to Morton, including the
period from January 1, 1998 to April 14, 1998, the six months ended December 31,
1997, and the fiscal years ended June 30, 1997, and 1996, neither we nor Morton
consulted KPMG about either (a) the application of accounting principles to a
specified transaction, either completed or proposed, or (b) the type of audit
opinion that might be rendered on our or Morton's financial statements, or (b)
any matter that was a subject of a disagreement between us or
41
<PAGE>
Morton and Clifton Gunderson or that was a reportable event of the kind
described in four listed items in the immediately preceding paragraph.
SELECTION OF CLIFTON GUNDERSON (APRIL 14, 1998)
On April 14, 1998, our Board of Directors, acting upon the recommendation of
the Audit Committee of the Board, selected Clifton Gunderson to serve as our
independent accountants for the fiscal year ending December 31, 1998. For the
fiscal year ended December 31, 1997, Ernst & Young LLP ("Ernst & Young") served
as the independent auditors for us, and for the fiscal year ended June 30, 1997,
and the six months ended December 31, 1997, Clifton Gunderson served as Morton's
independent auditors. Following the Merger, we retained both firms to complete
our and Morton's respective audits for the periods ended December 31, 1997.
During the 1997 and 1996 fiscal years, Ernst & Young's reports on our
financial statements did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified in any way. During the same period, we had no
disagreements with Ernst & Young on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
During the 1997 and 1996 fiscal years and during 1998, Ernst & Young did not
advise us:
- that we did not have internal controls necessary for the development of
reliable financial statements;
- that information had come to Ernst & Young's attention that has led it to
no longer be able to rely on management's representations, or that has
made it unwilling to be associated with the financial statements prepared
by management;
- that Ernst & Young needed to expand significantly the scope of its audit,
or that information had come to Ernst & Young's attention that if further
investigated may (a) materially impact the fairness or reliability of
either: a previously issued audit report or the underlying financial
statements, or (b) cause it to be unwilling to rely on management's
representations or be associated with our financial statements,
- that information had come to Ernst & Young's attention that it concluded
materially impacted the fairness or reliability of either (a) a previously
issued audit report or the underlying financial statements, or (b) the
financial statements to be issued covering the fiscal period subsequent to
the date of the most recent financial statements covered by an audit
report.
During the 1997 and 1996 fiscal years of the Company and during any
subsequent interim period of either ourselves or Morton, neither we nor Morton
consulted Clifton Gunderson about either (a) the application of accounting
principles to a specified transaction, either completed or proposed, or (b) the
type of audit opinion that might be rendered on our financial statements, or (b)
any matter that was a subject of a disagreement between us and Ernst & Young or
that was a reportable event of the kind described in the four listed items in
the immediately preceding paragraph.
42
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10 about the executive officers and
Directors of the Company is incorporated herein by reference to the information
set forth under the caption "Election of Directors" in our definitive proxy
statement for the 1999 annual meeting of shareholders, which we expect to file
with the Securities and Exchange commission not later than one hundred twenty
days after December 31, 1998 pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated herein by reference
to the information set forth under the caption "Executive Compensation" in our
definitive proxy statement for the 1999 annual meeting of shareholders, which we
expect to file with the Securities and Exchange commission not later than one
hundred twenty days after December 31, 1998 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated herein by reference
to the information set forth under the caption "Principal Shareholders of the
Company" in our definitive proxy statement for the 1999 annual meeting of
shareholders, which we expect to file with the Securities and Exchange
commission not later than one hundred twenty days after December 31, 1998
pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated herein by reference
to the information set forth under the caption "Executive Compensation--Certain
Relationships and Related Transactions" in our definitive proxy statement for
the 1999 annual meeting of shareholders, which we expect to file with the
Securities and Exchange commission not later than one hundred twenty days after
December 31, 1998 pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS CONTAINED ON FORM
8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements.
The following financial statements of the Company are included in Item 8:
<TABLE>
<S> <C> <C>
a Report of KPMG LLP, Independent Auditors
b. Report of Clifton Gunderson L.L.C., Independent Auditors
c. Consolidated Balance Sheets as of December 31, 1997 and 1998
d. Consolidated Statements of Operations for each of the years in the two
years ended June 30, 1997, the six months ended December 31, 1997 and
the year ended December 31, 1998
e. Consolidated Statements of Stockholders' Equity (Deficit) for each of
the years in the two years ended June 30, 1997, the six months ended
December 31, 1997 and the year ended December 31, 1998
f. Consolidated Statements of Cash Flows for each of the years in the two
years ended June 30, 1997, the six months ended December 31, 1997 and
the year ended December 31, 1998
g. Notes to Consolidated Financial Statements
</TABLE>
2. Financial Statement Schedules
The following financial statement schedule of the Company is included in
Item 8:
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts for each of the years in the two
years ended June 30, 1997, the six months ended December 31, 1997 and the year
ended December 31, 1998
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH
- --------------------------------------------------------- -------------------------------- --------------------
<S> <C> <C>
2.1 and 10.1--Agreement and Plan of Merger Between MLX Annex B to the Definitive Proxy
Corp. and Morton Metalcraft Holding Co., dated as of Statement on Schedule 14A filed
October 20, 1997 by MLX Corp. with the Securities
and Exchange Commission ("SEC")
on January 6, 1998.
2.2 and 10.2--Securities Purchase Agreement Among MLX Morton Industrial Group, Inc.
Corp. and Security Holders of Morton Metalcraft Holding Form 10-K for the year ended
Co., dated as of October 20, 1997 December 31, 1997
3.1 and 4.1--Articles of Incorporation of the registrant MLX Corp. Form 10-Q for the
as Amended prior to January 20, 1998 quarter ended June 30, 1993
3.2 and 4.2--Articles of Amendment to Articles of Exhibit 3 to Morton Industrial
Incorporation of the Registrant Effective January 20, Group, Inc. Report on Form 8-K
1998 filed with the SEC on February
4, 1998
3.2 and 4.2--Bylaws of the Registrant, as Amended Morton Industrial Group, Inc.
Form 10-K for the year ended
December 31, 1997
4.3 and 10.3--Credit Agreement Among the Registrant, Morton Industrial Group, Inc.
Morton Metalcraft Co., Morton Metalcraft Co. of North Form 10-K for the year ended
Carolina and Harris Trust & Savings Bank, individually December 31, 1997
and as Agent, dated January 20, 1998
4.4 and 10.4--Security Agreement executed by Morton Morton Industrial Group, Inc.
Industrial Group, Inc., Morton Metalcraft Co., and Morton Form 10-K for the year ended
Metalcraft Co. of North Carolina in favor of Harris Trust December 31, 1997
& Savings Bank, individually and as Agent, dated January
20, 1998
4.5 and 10.5--Mortgage and Security Agreement with Morton Industrial Group, Inc.
Assignment of Rents executed by Morton Metalcraft Co. in Form 10-K for the year ended
favor of Harris Trust & Savings Bank, individually and as December 31, 1997
Agent, dated January 20, 1998
4.6 and 10.6--Pledge Agreement executed by Registrant in Morton Industrial Group, Inc.
favor of Harris Trust & Savings Bank, individually and as Form 10-K for the year ended
Agent, dated January 20, 1998 December 31, 1997
10.7--Limited Indemnification Agreement dated as of Morton Industrial Group, Inc.
October 20, 1997, among MLX Corp., William D. Morton, and Form 10-K for the year ended
Other Morton Metalcraft Shareholders and Option Holders December 31, 1997
10.8--Industrial Building Lease between Morton Welding Morton Industrial Group, Inc.
Co., Inc., and Morton Metalcraft Co. dated September 1, Form 10-K for the year ended
1994 December 31, 1997
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH
- --------------------------------------------------------- -------------------------------- --------------------
<S> <C> <C>
10.9--Lease between Caterpillar, Inc., and Morton Morton Industrial Group, Inc.
Metalcraft Co., Inc. dated June 9, 1995 Form 10-K for the year ended
December 31, 1997
10.10--Lease between Agracel, Inc., and Morton Metalcraft Morton Industrial Group, Inc.
Co. dated November 6, 1996. Form 10-K for the year ended
December 31, 1997
10.11--Employment Agreement dated as of January 20, 1998, Morton Industrial Group, Inc.
between the Registrant and William D. Morton Form 10-K for the year ended
December 31, 1997
10.12--Employment Agreement dated as of January 20, 1998, Morton Industrial Group, Inc.
between the Registrant and Daryl R. Lindemann Form 10-K for the year ended
December 31, 1997
10.13--MLX Corp. 1997 Stock Option Plan Appendix C to the Definitive
Proxy Statement on Schedule 14A
filed by MLX Corp. with the SEC
on January 6. 1998.
10.14--MLX Corp. 1995 Stock Option Plan MLX Corp. Definitive Proxy
Statement on Schedule 14A for
the 1995 Annual Meeting of
Stockholders
10.15--Master Lease Agreement between Morton Metalcraft Morton Industrial Group, Inc.
Co. and General Electric Capital Corporation dated August Form 10-K for the year ended
7, 1996 December 31, 1997
10.16--Guaranty of Master Lease Agreement by Morton Morton Industrial Group, Inc.
Metalcraft Holding Co., dated August 7, 1996 Form 10-K for the year ended
December 31, 1997
10.17--Split Dollar Insurance Agreement between Morton Morton Industrial Group, Inc.
Metalcraft Co. and William D. Morton dated February 3, Form 10-K for the year ended
1995. December 31, 1997
10.18--Split Dollar Assignment between William D. Morton Morton Industrial Group, Inc.
and Morton Metalcraft Co. dated February 3, 1995 Form 10-K for the year ended
December 31, 1997
10.19--Split Dollar Insurance Agreement between Morton Morton Industrial Group, Inc.
Metalcraft Co. and William D. Morton dated October 10, Form 10-K for the year ended
1993 December 31, 1997
10.20--Split Dollar Assignment between William D. Morton Morton Industrial Group, Inc.
and Morton Metalcraft Co., dated October 10, 1993 Form 10-K for the year ended
December 31, 1997
10.21--Split Dollar Insurance Agreement between Morton Morton Industrial Group, Inc.
Metalcraft Co. and Daryl R. Lindemann dated October 10, Form 10-K for the year ended
1993 December 31, 1997
10.22--Split Dollar Assignment between Daryl R. Lindemann Morton Industrial Group, Inc.
and Morton Metalcraft Co., dated October 10, 1993 Form 10-K for the year ended
December 31, 1997
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH
- --------------------------------------------------------- -------------------------------- --------------------
<S> <C> <C>
10.23--Death Benefit Agreement between Morton Metalcraft Morton Industrial Group, Inc.
Co. and William D. Morton Form 10-K for the year ended
December 31, 1997
10.24--Salary Continuation Agreement between Morton Morton Industrial Group, Inc.
Metalcraft Co. and William D. Morton dated February 26, Form 10-K for the year ended
1996. December 31, 1997
10.25--Stock Purchase Agreement among the Company and Exhibit 10.1 to Morton
Gary L. George and Gloria J. George, dated March 2, 1998. Industrial Group, Inc. Report on
Form 8-K filed with the SEC on
April 14, 1998
10.26--Stock Purchase Agreement among the Company, Joseph Exhibit 10.2 to Morton
T. Buie, Jr., and Ernest J. Butler, dated April 8, 1998. Industrial Group, Inc. Report on
Form 8-K filed with the SEC on
April 14, 1998
10.27--Non-negotiable Promissory Note (subordinated) of Exhibit 10.3 Morton Industrial
the Company to Joseph T. Buie, Jr., dated April 8, 1998. Group, Inc. Report on Form 8-K
filed with the SEC on April 14,
1998
10.28--Non-negotiable Promissory Note (subordinated) of Exhibit 10.4 Morton Industrial
the Company to Ernest. J. Butler, dated April 8, 1998. Group, Inc. Report on Form 8-K
filed with the SEC on April 14,
1998
10.29--Stock Purchase Agreement among the Company and Exhibit 10.1 Morton Industrial
Richard L. Goreham, Delores A. Staples and William B. Group, Inc. Report on Form 8-K
Goreham, dated April 27, 1998. filed with the SEC on June 12,
1998
10.30--Credit Agreement dated May 28, 1998 among the Exhibit 10.2 Morton Industrial
Company, Harris Trust and Savings Bank, and the lenders Group, Inc. Report on Form 8-K
signatory thereto. filed with the SEC on June 12,
1998
10.31--Mortgage and Security Agreement with Assignment of Exhibit 10.3 Morton Industrial
Rents executed by Carroll George Inc. dated May 28, 1998. Group, Inc. Report on Form 8-K
filed with the SEC on June 12,
1998
10.32--Deed of Trust and Security Agreement with Exhibit 10.4 Morton Industrial
Assignment of Rents executed by B&W Metal Fabricators, Group, Inc. Report on Form 8-K
Inc. filed with the SEC on June 12,
1998
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH
- --------------------------------------------------------- -------------------------------- --------------------
<S> <C> <C>
10.33--Amended and Restated Security Agreement executed Exhibit 10.5 Morton Industrial
by the Company, Morton Metalcraft Co., Morton Metalcraft Group, Inc. Report on Form 8-K
Co. of North Carolina, Morton Metalcraft Co. of South filed with the SEC on June 12,
Carolina, Carroll George Inc. and B&W Metal Fabricators, 1998
Inc. dated May 28, 1998.
10.34--Amended and Restated Pledge Agreement executed by Exhibit 10.6 Morton Industrial
the Company, Morton Metalcraft Co., Morton Metalcraft Co. Group, Inc. Report on Form 8-K
of North Carolina, Morton Metalcraft Co. of South filed with the SEC on June 12,
Carolina, Carroll George Inc. and B&W Metal Fabricators, 1998
Inc. dated May 28, 1998.
10.35--Amended and Restated Mortgage and Security Exhibit 10.7 Morton Industrial
Agreement with Assignment of Rents executed by Morton Group, Inc. Report on Form 8-K
Metalcraft Co., dated May 28, 1998. filed with the SEC on June 12,
1998
10.35--Mortgage and Security Agreement with Assignment of Exhibit 10.8 to Morton
Rents executed by Mid-Central Plastics, Inc. dated May Industrial Group, Inc. Report on
28, 1998. Form 8-K filed with the SEC on
June 12, 1998
10.36--First Amendemnt to Credit Agreement with Harris X
Trust & Savings Bank.
16.1--Letter re: change in certifying accountant Exhibit 16.1 to Morton
Industrial Group, Inc. Report on
Form 8-K filed with the SEC on
April 16, 1998
16.2--Letter re: change in certifying accountant Exhibit 16.1 to Morton
Industrial Group, Inc. Report on
Form 8-K filed with the SEC on
February 18, 1999
21.1--Subsidiaries of Registrant X
23.1--Consent of KPMG LLP X
23.2--Consent of Clifton Gunderson, L.L.C. X
27.1--Financial Data Schedule--Morton Industrial Group, X
Inc.
(b) Reports on Form 8-K
</TABLE>
None.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant as duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORTON INDUSTRIAL GROUP, INC.
By: /s/ WILLIAM D. MORTON
-----------------------------------------
William D. Morton
PRESIDENT, CHIEF EXECUTIVE
OFFICER, AND CHAIRMAN OF THE
BOARD OF DIRECTORS
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ WILLIAM D. MORTON President, Chief Executive
- ------------------------------ Officer, and Chairman of March 30, 1999
William D. Morton the Board of Directors
/s/ THOMAS D. LAUERMAN Vice President of Finance
- ------------------------------ and Treasurer (Principal March 30, 1999
Thomas D. Lauerman Accounting Officer)
/s/ FRED W. BROLING Director
- ------------------------------ March 30, 1999
Fred W. Broling
/s/ ALFRED R. GLANCY III Director
- ------------------------------ March 30, 1999
Alfred R. Glancy III
/s/ MARK W. MEALY Director
- ------------------------------ March 30, 1999
Mark W. Mealy
/s/ WILLEM F. P. DE VOGEL Director
- ------------------------------ March 30, 1999
Willem F. P. De Vogel
<PAGE>
SHAREHOLDER INFORMATION
CORPORATE OFFICES
Morton Industrial Group, Inc.
1021 W. Birchwood
Morton, Illinois 61550-0429
Phone: 309-263-3300 Fax: 309-263-3216
INVESTOR INFORMATION
Shareholders and prospective investors are welcome to call or write with
questions or requests for additional information. Please direct inquiries to Van
Negris at:
Kehoe, White, Van Negris & Company, Inc.
766 Madison Avenue
New York, NY 10021
Phone: 212-396-0606 Fax: 212-396-9025
ANNUAL MEETING
The Annual Meeting of the Shareholders of Morton Industrial Group, Inc. will be
held at the Bertha Frank Performing Arts Center
located at 350 N. Illinois Avenue
Morton, IL 61550
Tuesday, June 8, 1999 at 11:00 a.m. (CDT)
FORM 10-K
A copy of form 10-K, the Annual Report which the Company is required to file
with the Securities and Exchange Commission, is available without charge upon
request to the Company at the above address.
STOCK TRANSFER AGENT AND REGISTRAR
For inquiries about stock transfers or address changes, shareholders may
contact:
American Stock Transfer & Trust Co.
40 Wall Street
46(th) Floor
New York, NY 10005
Phone: 800-937-5449
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP
STOCK MARKET INFORMATION
The common stock of Morton Industrial Group, Inc. is traded on the Nasdaq
SmallCap Market under the ticker symbol MGRP.
BOARD OF DIRECTORS
William D. Morton
Chairman of the Board, President and CEO
Morton Industrial Group, Inc.
Fred W. Broling
President and CEO
US Precision Glass
Willem F.P. de Vogel
President
Three Cities Research, Inc.
Alfred R. Glancy III
Chairman and CEO
MCN Energy Group, Inc.
Mark W. Mealy
Managing Director
Bowles Hollowell Conner & Co.
CORPORATE OFFICERS
William D. Morton
Chairman of the Board, President and CEO
Daryl R. Lindemann
Vice President of Business Development & Acquisitions
Thomas D. Lauerman
Vice President of Finance
<PAGE>
MORTON INDUSTRIAL GROUP, INC.
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank LaSalle National Bank
Chicago, Illinois Chicago, Illinois
Branch Banking & Trust Co. National City Bank
Raleigh, North Carolina Cleveland, Ohio
Firstar Bank Milwaukee, N.A.
Milwaukee, Wisconsin
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
May 29, 1998 (the "CREDIT AGREEMENT"), as amended and currently in effect by
and among, Morton Industrial Group, Inc., a Georgia corporation (the
"BORROWER"), and you (the "LENDERS"). All capitalized terms used herein
without definition shall have the same meanings herein as such terms have in
the Credit Agreement.
The Borrower hereby applies to the Lenders to decrease the amount of the
Revolving Credit Commitments, to amend certain of the financial covenants
contained therein, and to make certain other amendments to the Credit
Agreement, and the Lenders are willing to do so under the terms and
conditions set forth in this Amendment.
1. DECREASE OF REVOLVING CREDIT COMMITMENT AMOUNTS.
Upon the effective date of this Amendment, the amount of each Lender's
Revolving Credit Commitment set forth opposite its name on its signature page
to the Credit Agreement shall be amended and as so amended shall be restated
as follows:
<TABLE>
<CAPTION>
AMOUNT OF REVOLVING
LENDER CREDIT COMMITMENT
<S> <C>
Harris Trust and Savings Bank $8,750,000
(41.666666%)
Firstar Bank Milwaukee, N.A. $2,916,666.69
(13.888889%)
National City Bank $2,333,333.31
(11.111111%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Branch Banking & Trust $3,500,000
(16.666667%)
LaSalle National Bank $3,500,000
(16.666667%)
</TABLE>
2. AMENDMENTS.
Upon the effective date of this Amendment, the Credit Agreement shall be and
hereby is amended as follows:
2.01. Section 8.6 of the Credit Agreement is hereby amended in its
entirety and as so amended shall be restated to read as follows:
SECTION 8.6. INTEREST COVERAGE RATIO. The Borrower will, as of
the last day of each fiscal quarter of the Borrower ending during any of the
periods specified below, maintain an Interest Coverage Ratio of not less
than:
<TABLE>
<CAPTION>
INTEREST COVERAGE RATIO
FROM AND INCLUDING TO AND INCLUDING SHALL NOT BE LESS THAN
<S> <C> <C>
January 1, 1999 March 31, 1999 1.05 to 1.0
April 1, 1999 June 30, 1999 1.00 to 1.0
July 1, 1999 September 30, 1999 1.05 to 1.0
October 1, 1999 December 31, 1999 1.55 to 1.0
January 1, 2000 at all times thereafter 2.00 to 1.0
</TABLE>
2.02. Section 8.7 of the Credit Agreement is hereby amended in its
entirety and as so amended shall be restated to read as follows:
SECTION 8.7. CASH FLOW LEVERAGE RATIO. The Borrower shall not, at
any time during each of the periods specified below, permit the Cash Flow
Leverage Ratio to be greater than:
<TABLE>
<CAPTION>
CASH FLOW LEVERAGE RATIO
FROM AND INCLUDING TO AND INCLUDING SHALL NOT BE GREATER THAN
<S> <C> <C>
January 1, 1999 March 31, 1999 5.25 to 1.0
April 1, 1999 June 30, 1999 5.50 to 1.0
July 1, 1999 September 30, 1999 5.00 to 1.0
October 1, 1999 December 31,1999 4.25 to 1.0
January 1, 2000 at all times thereafter 3.50 to 1.0
</TABLE>
2.03. Section 8.9 of the Credit Agreement is hereby amended in its
entirety and as so amended shall be restated to read as follows:
SECTION 8.9. FIXED CHARGE COVERAGE RATIO. The Borrower will
not, as the last day of each fiscal quarter of the Borrower ending during any
of the periods specified below (commencing with the fiscal quarter of the
Borrower ending on or
-2-
<PAGE>
about June 30, 1999), permit the Fixed Charge Coverage Ratio to be less than:
<TABLE>
FROM AND INCLUDING TO AND INCLUDING FIXED CHARGE COVERAGE
RATIO SHALL NOT BE LESS
THAN:
<S> <C> <C>
April 1, 1999 June 30, 1999 1.15 to 1.0
July 1, 1999 September 30, 1999 1.20 to 1.0
October 1, 1999 at all times thereafter 1.40 to 1.0
</TABLE>
2.04. Section 8.10 of the Credit Agreement shall be amended by
striking the amount "$12,000,000" appearing in the fourth line thereof and
substituting therefor the amount "$7,000,000".
2.05. The definition of "Applicable Margin" appearing in Section 5.1
of the Credit Agreement is hereby amended in its entirety and as so amended
shall be restated to read as follows:
"Applicable Margin" means, with respect to Loans, Reimbursement
Obligations, and the commitment fees payable under Section 2.1 hereof, from
and including January 1, 1999 through the first Pricing Date the rate per
annum specified below:
<TABLE>
<CAPTION>
<S> <C>
Applicable Margin for Domestic Rate Loans under
the Revolving Credit and Swing Line Commitment
and Term A Loan and Reimbursement Obligations: 1.00%
Applicable Margin for LIBOR Loans under the
Revolving Credit and Term A Loan and letter
of credit fee: 3.25%
Applicable Margin for commitment fee: 0.50%
Applicable Margin for Domestic Rate Loans
under Term B Loan: 1.50%
Applicable Margin for LIBOR Loans under
Term B Loan: 3.75%
</TABLE>
; PROVIDED, HOWEVER, that (i) the Applicable Margin for Domestic Rate Loans
and LIBOR Loans in each case under the Term B Loan shall in both cases
increase by 0.75%, respectively, on each of June 30, 1999, September 30, 1999
and December 31, 1999 and (ii) the Applicable Margin for Revolving Credit
Loans, Swingline Loans, the Term A Loan, Reimbursement Obligations and the
commitment fee shall be subject to further quarterly adjustments on the first
Pricing Date and each Pricing Date thereafter and shall mean from and
including each such Pricing Date to the next Pricing Date, a rate per annum
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Cash Flow Leverage Applicable Margin for Applicable Margin for Applicable Margin for
Ratio for Such Pricing Base Rate Loans shall LIBOR Loans Shall Be: Commitment Fee Shall
Date be: Be:
<S> <C> <C> <C>
Less than 2.00 to 1.0 0% 2.25% 0.25%
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Greater than or equal to 0.25% 2.50% 0.375%
2.00 to 1.0, but less than
2.50 to 1.00.
Greater than or equal to 0.50% 2.75% 0.375%
2.50 to 1.0, but less than
3.0 to 1.0
Greater than or equal to 0.75% 3.00% 0.50%
3.0 to 1.0, but less than
3.5 to 1.0
Greater than or equal to 1.00% 3.25% 0.50%
3.5 to 1.0
</TABLE>
For purposes hereof, the term "PRICING DATE" means, for any fiscal quarter of
the Borrower ending on or after December 31, 1999, the first date on which
the Agent is in receipt of the Borrower's most recent financial statements
(meaning, in the case of any fiscal quarter coinciding with the Borrower's
fiscal yearend, the related, audit report) for the fiscal quarter then ended,
pursuant to Section 8.5 hereof. The Applicable Margin on each Pricing Date
shall be established based on the Cash Flow Leverage Ratio as of the close of
the then most recently completed fiscal quarter of the Borrower and the
Applicable Margin established on a Pricing Date shall remain in effect until
the next Pricing Date. If the Borrower has not delivered its financial
statements by the date such financial statements (and, in the case of the
year-end financial statements, audit report) are required to be delivered
under Section 8.5 hereof, until such financial statements are delivered, the
Applicable Margin shall be the highest Applicable Margin (I.E., the Cash Flow
Leverage Ratio shall be deemed to be greater than 3.5 to 1.0). If the
Borrower subsequently delivers such financial statements before the next
Pricing Date, the Applicable Margin established by such late delivered
financial statements shall take effect from the date of delivery until such
next Pricing Date. In all other circumstances, the Applicable Margin
established by such financial statements shall be in effect from the Pricing
Date that occurs immediately after the end of the fiscal quarter covered by
such financial statements until the next Pricing Date. Each determination of
the Applicable Margin made by the Agent in accordance with the foregoing
shall be conclusive and binding on the Borrower and the Lenders if reasonably
determined.
2.06. The definition of "FIXED CHARGE COVERAGE RATIO" appearing in
Section 5.1 of the Credit Agreement is hereby amended in its entirety and as
so amended shall be restated to read as follows:
"FIXED CHARGE COVERAGE RATIO" means, as of any date the same is to be
determined, the ratio of (i) EBITDA for the four (4) consecutive fiscal
quarters of the Borrower ending on, or (if none so and) most recently
completed prior to such date to (ii) the sum (during the same four (4) fiscal
quarters) of (a) Interest Expense and (b) Cash Maturities.
2.07. Section 8.5(a) of the Credit Agreement is hereby amended in its
entirety and as so amended shall be restated to read as follows:
-4-
<PAGE>
(a) (i) as soon as available, and in any event within 45 days
after the close of each monthly fiscal period of the Borrower which is
also the end of a fiscal quarter of the Borrower and within 30 days
after the close of each other monthly fiscal period of the Borrower, a
copy of the balance sheet and statements of income of the Borrower and
its Subsidiaries for such period, and (ii) as soon as available, and
in any event within 45 days after the close of each monthly fiscal
period of the Borrower which is also the end of a fiscal quarter of the
Borrower, a copy of the statements of retained earnings and cash flows
of the Borrower and its Subsidiaries for such period, all prepared on a
consolidated basis and in reasonable detail showing in comparative form
the figures for the corresponding date and period in the previous fiscal
year, prepared by the Borrower in accordance with GAAP (subject to normal
year-end audit adjustments and the absence of notes) and certified to by
the chief financial officer of the Borrower;
2.08. Section 8.5 of the Credit Agreement shall be amended by striking
the second to last paragraph thereof and substituting therefor the following:
Each of the financial statements furnished to the Lenders pursuant
to clauses (a) and (b) of this Section corresponding to the end of a
fiscal quarter or fiscal year of the Borrower shall be accompanied by a
written certificate in the form attached hereto as Exhibit E signed by
the chief financial officer of the Borrower to the effect that to the
best of the chief financial officer's knowledge and belief no Default
or Event of Default is continuing as of the close of the period covered
by such statements or, if any such Default or Event of Default is
continuing as of the close of such period, setting forth a description
of such Default or Event of Default and specifying the action,
if any, taken by the Borrower to remedy the same. Such certificate shall
also set forth the calculations supporting such statements in respect of
Sections 8.6, 8.7, 8.8, 8.9 and 8.10 of this Agreement.
3. WAIVERS.
The Borrower has informed the Lenders that it is not in compliance with
Section 8.6 and Section 8.7 of the Credit Agreement for the Borrower's fiscal
quarter ended December 31, 1998. The Borrower has also informed the Lenders
that it is not in compliance with Section 8.8 of the Credit Agreement for the
Borrower's fiscal quarters ended December 31, 1998 and March 31, 1999. In
accordance with the request of the Borrowers, the Lenders hereby waive
compliance with such Sections 8.6, 8.7 and 8.8 at all times during the fiscal
quarter of the Borrower ended December 31, 1998 and also waive compliance
with such Section 8.8 at all times during the fiscal quarter of the Borrower
ended March 31, 1999. The Borrower hereby acknowledges and agrees that
non-compliance after such periods constitutes an Event of Default under the
Credit Agreement. Accordingly, at all times after December 31, 1998 with
respect to Sections 8.6 and 8.7 and March 31, 1999 with respect to
Section 8.8, the Borrower shall be in full compliance with such Sections and
all other terms, conditions and provisions of the
-5-
<PAGE>
Credit Agreement and the Loan Documents.
4. AMENDMENT FEE.
In order to induce the Lenders to execute this Amendment, the Borrower
has agreed to pay an amendment fee to each Lender which executes this
Amendment. Such fee to be payable (i) to each of Harris Trust and Savings
Bank, Firstar Bank Milwaukee, N.A., Branch Banking & Trust Co. and LaSalle
National Bank in the amount equal to 0.25% of the aggregate amount of such
Lender's Commitments (as amended hereby) if such Lender executes and delivers
this Amendment and (ii) to National City Bank in the amount equal to 0.125%
of the aggregate amount of such Lender's Commitments (as amended hereby) if
such Lender so executes and delivers this Amendment. The amendment fee
payable to each Lender specified herein shall be deemed fully earned and
non-refundable upon such Lender's execution of this Amendment and shall be
due and payable immediately upon with such Lender's execution of this
Amendment, whether or not this Amendment takes effect.
5. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all of
the following conditions precedent:
5.01. The Borrower, each of the Guarantors, the Agent and the Required
Lenders shall have executed and delivered this Amendment.
5.02. The Borrower shall have made such prepayments on the Revolving
Credit Loans so as to assure the aggregate unpaid principal balance of
Revolving Credit Loans does not exceed the Revolving Credit Commitments after
giving effect to this Amendment.
5.03. After giving effect to this Amendment, no Default or Event of
Default shall have occurred and be continuing as of the date this Amendment
would otherwise take effect.
5.04. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lenders and their counsel.
5.05 The Agent shall have received for the account of the Lenders the
amendment fee required to be paid by the Borrower under Section 4 of this
Amendment.
Upon satisfaction of such conditions precedent, this Amendment shall be and
become effective, and its "effective date" shall be March 26, 1999.
6. REPRESENTATIONS.
-6-
<PAGE>
In order to induce the Lenders to execute and deliver this Amendment, the
Borrower hereby represents to the Lenders that as of the date hereof, the
representations and warranties set forth in Section 6 of the Credit Agreement
are and shall be and remain true and correct (except that for purposes of
this paragraph the representations contained in Section 6.4 shall be deemed
to refer to the most recent financial statements of the Borrower delivered to
the Lenders) and the Borrower is in full compliance with all of the terms and
conditions of the Credit Agreement after giving effect to this Amendment and
no Default or Event of Default has occurred and is continuing under the
Credit Agreement or shall result after giving effect to this Amendment.
7. MISCELLANEOUS.
7.01. The Borrower and each Guarantor acknowledges and agrees that all
of the Loan Documents to which it is a party remain in full force and effect
for the benefit and security of, among other things, the Obligations as
modified hereby. The Borrower and each Guarantor further acknowledges and
agrees that all references in such Loan Documents to the Obligations shall be
deemed a reference to the Obligations as so modified. The Borrower and each
Guarantor further agrees to execute and deliver any and all instruments or
documents as may be required by the Agent or Required Lenders to confirm any
of the foregoing.
7.02. Except as specifically amended herein or waived hereby, the
Credit Agreement shall continue in full force and effect in accordance with
its original terms. Reference to this specific Amendment need not be made in
the Credit Agreement, the Notes, or any other instrument or document executed
in connection therewith, or in any certificate, letter or communication
issued or made pursuant to or with respect to the Credit Agreement, any
reference in any of such items to the Credit Agreement being sufficient to
refer to the Credit Agreement as amended hereby.
7.03. This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Amendment by signing any such counterpart and
each of such counterparts shall for all purposes be deemed to be an original.
This Amendment shall be governed by the internal laws of the State of
Illinois.
7.04. The Borrower agrees to pay all reasonable out-of-pocket costs and
expenses incurred by the Agent in connection with the preparation, execution
and delivery of this Amendment and the documents and transactions
contemplated hereby, including the reasonable fees and expenses of counsel
for the Agent with respect to the foregoing.
-7-
<PAGE>
Dated as of ______________, 1999.
Morton Industrial Group, Inc.
By
---------------------------------
Name:
Title:
Morton Metalcraft Co.
By
---------------------------------
Name:
Title:
Morton Metalcraft Co. of North Carolina
By
---------------------------------
Name:
Title:
Morton Metalcraft Co. of South Carolina
By
---------------------------------
Name:
Title:
Carroll George, Inc.
By
---------------------------------
Name:
Title:
B&W Metal Fabricators, Inc.
-8-
<PAGE>
By
---------------------------------
Name:
Title:
-9-
<PAGE>
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
Harris Trust And Savings Bank
By
---------------------------------
Name:
Title:
Branch Banking & Trust Co.
By
---------------------------------
Name:
Title:
Firstar Bank Milwaukee, N.A.
By
---------------------------------
Name:
Title:
LaSalle National Bank
By
---------------------------------
Name:
Title:
National City Bank
By
---------------------------------
Name:
Title:
-10-
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
At December 31, 1998, the Company had six directly wholly owned subsidiaries:
Morton Metalcraft Co., an Illinois corporation
Morton Metalcraft Co. of North Carolina, a North Carolina corporation
Carroll George Inc., an Iowa corporation
B&W Metal Fabricators, Inc., a North Carolina corporation
Mid-Central Plastics, Inc., an Iowa corporation
Morton Metalcraft Co. of South Carolina, a South Carolina corporation
<PAGE>
The Board of Directors and Stockholders
Morton Industrial Group, Inc.
We consent to incorporation by reference in the registration statements (Nos.
333-68927 and 333-69575) on Form S-8 of Morton Industrial Group, Inc. of our
report dated February 22, 1999, relating to the consolidated balance sheet of
Morton Industrial Group, Inc. and Subsidiaries as of December 31, 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year ended December 31, 1998, and the
related schedule, which report appears in the December 31, 1998, annual
report on Form 10-K of Morton Industrial Group, Inc.
KPMG LLP
Indianapolis, Indiana
March 29, 1999
<PAGE>
EXHIBIT 23.2
The Board of Directors and Stockholders
Morton Industrial Group, Inc.
We consent to incorporation by reference in the registration statements (Nos.
333-68927 and 333-69575) on Form S-8 of Morton Industrial Group, Inc. of our
report dated February 4, 1998, relating to the consolidated balance sheet of
Morton Industrial Group, Inc. and Subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the two year period ended
June 30, 1997, and the six months ended December 31, 1997, and the related
schedule, which report appears in the December 31, 1998, annual report on
Form 10-K of Morton Industrial Group, Inc.
CLIFTON GUNDERSON L.L.C.
Peoria, Illinois
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,125
<SECURITIES> 0
<RECEIVABLES> 16,020
<ALLOWANCES> (130)
<INVENTORY> 14,483
<CURRENT-ASSETS> 35,701
<PP&E> 73,059
<DEPRECIATION> 27,415
<TOTAL-ASSETS> 100,728
<CURRENT-LIABILITIES> 38,143
<BONDS> 53,281
0
0
<COMMON> 41
<OTHER-SE> 6,827
<TOTAL-LIABILITY-AND-EQUITY> 100,728
<SALES> 151,196
<TOTAL-REVENUES> 151,196
<CGS> 129,740
<TOTAL-COSTS> 129,740
<OTHER-EXPENSES> 14,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,720
<INCOME-PRETAX> 2,498
<INCOME-TAX> 415
<INCOME-CONTINUING> 2,083
<DISCONTINUED> 0
<EXTRAORDINARY> 419
<CHANGES> 0
<NET-INCOME> 1,664
<EPS-PRIMARY> .41
<EPS-DILUTED> .36
</TABLE>
