10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 28, 2003

OR

o 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 0-13198

MORTON INDUSTRIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Georgia
(State or other jurisdiction of
Incorporation or organization) 38-0811650
(IRS Employer
Identification No.)

1021 W. Birchwood, Morton, Illinois 61550
(Address of principal executive offices)

(309) 266-7176
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x   No   o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   Yes   o   No   x

     The aggregate market value of the common stock held by non-affiliates of the registrant (based upon the last reported sale price on the Nasdaq Small Cap Market) on the last business day of the registrant’s most recently completed second fiscal quarter was approximately $850,000.

	Outstanding as of
	July 31, 2003
Class A Common Stock, $.01 par value		4,460,547
Class B Common Stock, $.01 par value		200,000

TABLE OF CONTENTS

PART I
ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Certification
Certification
Section 906 Certification
Section 906 Certification
4th Amendment to Amended & Restated Credit Agmt

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 28, 2003 and June 29, 2002
(Dollars in thousands, except per share data)
(Unaudited)

				Three Months Ended						Six Months Ended
				June 28, 2003			June 29, 2002			June 28, 2003			June 29, 2002
Net sales				$	34,398			32,241			66,778			61,418
Cost of sales					29,388			27,391			57,177			52,451
			Gross profit		5,010			4,850			9,601			8,967
Operating expenses:
	Selling expenses				712			721			1,413			1,427
	Administrative expenses				2,600			2,727			5,207			4,978
			Total operating expenses		3,312			3,448			6,620			6,405
			Operating income		1,698			1,402			2,981			2,562
Other income (expense):
	Interest expense				(936	)		(1,016	)		(1,869	)		(2,229	)
	Other				171			(38	)		337			199
			Total other income (expense)		(765	)		(1,054	)		(1,532	)		(2,030	)
			Earnings before income taxes, discontinued operations and cumulative effect of accounting change		933			348			1,449			532
Income taxes					360			—			560			—
			Earnings before discontinued operations and cumulative effect of accounting change		573			348			889			532
Discontinued operations:
	Net earnings (loss) from operations of discontinued plastics operations				(85	)		(2,770	)		140			(3,255	)
	Income taxes				(35	)		821			55			862
					(50	)		(3,591	)		85			(4,117	)
			Earnings (loss) before cumulative effect of accounting change		523			(3,243	)		974			(3,585	)
Cumulative effect of change in accounting principle, net of tax of $0					—			—			—			(8,118	)
			Net earnings (loss)		523			(3,243	)		974			(11,703	)
Accretion of discount on preferred shares				$	(383	)		(323	)		(715	)		(602	)
			Net earnings (loss) available to common shareholders		140			(3,566	)		259			(12,305	)
Earnings (loss) per common share — basic:
	Earnings (loss) from continuing operations			$	0.04			0.01			0.04			(0.02	)
	Earnings (loss) from discontinued operations				(0.01	)		(0.78	)		0.02			(0.89	)
	Net earnings (loss) available to common shareholders before cumulative effect of a change in accounting principle				0.03			(0.77	)		0.06			(0.91	)
	Cumulative effect of a change in accounting principle				—			—			—			(1.76	)
		Net earnings (loss) available to common shareholders		$	0.03			(0.77	)		0.06			(2.67	)
Earnings (loss) per common share — diluted:
	Earnings (loss) from continuing operations			$	0.03			0.01			0.03			(0.02	)
	Earnings (loss) from discontinued operations				(0.01	)		(0.78	)		0.02			(0.89	)
	Net earnings (loss) available to common shareholders before cumulative effect of a change in accounting principle				0.02			(0.77	)		0.05			(0.91	)
	Cumulative effect of a change in accounting principle				—			—			—			(1.76	)
		Net earnings (loss) available to common shareholders		$	0.02			(0.77	)		0.05			(2.67	)

See accompanying notes to condensed consolidated financial statements.

2

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
June 28, 2003 and December 31, 2002
(Dollars in thousands)

			June 28, 2003			December 31, 2002
			(Unaudited)
Assets
Current assets:
	Trade accounts receivable, less allowance for doubtful accounts of $174 in 2003 and $82 in 2002		$	10,257			5,251
	Notes receivable			196			—
	Inventories			12,356			14,322
	Prepaid expenses and other current assets			1,516			1,179
	Deferred income taxes			—			400
	Assets held for sale			—			8,990
		Total current assets		24,325			30,142
Property, plant, and equipment, net				22,599			23,364
Note receivable				1,100			—
Intangible assets, at cost, less accumulated amortization				1,009			1,336
Deferred income taxes				1,136			1,351
Other assets				581			660
			$	50,750			56,853
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
	Outstanding checks in excess of bank balance		$	2,628			1,289
	Current installments of long-term debt			41,198			5,331
	Accounts payable			13,652			14,731
	Accrued expenses			5,827			4,831
	Liabilities held for sale			—			6,254
		Total current liabilities		63,305			32,436
Long-term debt, excluding current installments				1,812			39,771
Other liabilities				275			262
		Total liabilities		65,392			72,469
Redeemable preferred stock				9,323			8,608
Stockholders’ equity (deficit):
	Class A common stock			45			45
	Class B common stock			2			2
	Additional paid-in capital			20,895			20,895
	Retained deficit			(44,907	)		(45,166	)
		Total stockholders’ equity (deficit)		(23,965	)		(24,224	)
			$	50,750			56,853

See accompanying notes to condensed consolidated financial statements.

3

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

For the Six Months Ended June 28, 2003
(Dollars in thousands)
(Unaudited)

		Class A				Class B
		common stock				common stock
										Additional		Retained
		Shares				Shares				paid-in		earnings
		issued		Amount		issued		Amount		capital		(deficit)			Total
Balance, December 31, 2002			4,460,547	$	45		200,000	$	2	$	20,895	$	(45,166	)	$	(24,224	)
	Net earnings		—		—		—		—		—		974			974
	Accretion of discount on preferred shares		—		—		—		—		—		(715	)		(715	)
Balance, June 28, 2003			4,460,547	$	45		200,000	$	2	$	20,895	$	(44,907	)	$	(23,965	)

See accompanying notes to condensed consolidated financial statements.

4

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 28, 2003 and June 29, 2002
(Dollars in thousands)
(Unaudited)

					Six Months Ended
					June 28, 2003			June 29, 2002
Net cash provided by operating activities					$	1,932			1,567
Cash flows from investing activities:
	Proceeds from sale of machinery and equipment					—			257
	Proceeds from sale of business					4,800			—
	Capital expenditures					(1,929	)		(1,749	)
		Net cash provided by (used in) investing activities				2,871			(1,492	)
Cash flows from financing activities:
	Net borrowings (repayments) under revolving credit facility					(4,200	)		3,681
	Increase (decrease) in checks outstanding in excess of bank balance					1,339			(1,156	)
	Increase in financing fees					(300	)		(1,112	)
	Principal payments on long-term debt and capital leases					(1,642	)		(1,501	)
	Cash received on exercised options					—			13
		Net cash used in financing activities				(4,803	)		(75	)
Net change in cash						—			—
Cash at beginning of period						—			—
Cash at end of period					$	—			—
Supplemental disclosures of cash flow information:
			Cash paid during the period for:
				Interest	$	1,373			3,144
				Income taxes	$	—			—

See accompanying notes to condensed consolidated financial statements.

5

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 28, 2003 and June 29, 2002
(Unaudited)

(1) Nature of Business

     Through our operating subsidiaries, we are a contract manufacturer and supplier of high-quality fabricated sheet metal components and subassemblies for industrial, construction and agricultural original equipment manufacturers located primarily in the Midwestern and Southeastern United States.

(2) Interim Financial Data

     The Condensed Consolidated Financial Statements at June 28, 2003, and for the three and six months ended June 28, 2003 and June 29, 2002, are unaudited and reflect all adjustments, consisting of normal recurring accruals and other adjustments which, in the opinion of our management, are necessary for a fair presentation of the financial position, operating results, and cash flows for the interim periods indicated. Our fiscal quarters end on a Saturday (nearest to a quarter end) except for the fourth quarter which ends on December 31. For both the quarters ended June 28, 2003 and June 29, 2002 there were 64 shipping days. For the six months ended June 28, 2003, there were 126 shipping days, and for the six months ended June 29, 2002, there were 127 shipping days. Results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year. You should read the condensed consolidated financial statements in connection with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations of Morton Industrial Group, Inc. contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, as filed on March 31, 2003.

(3) Discontinued Operations

     The results from discontinued operations for the three and six months ended June 29, 2002 reflect the results of both Morton Custom Plastics, LLC, which we sold on December 24, 2002, and Mid-Central Plastics, Inc., which we sold on June 20, 2003. The results from discontinued operations for the three and six months ended June 28, 2003 reflect only the results of Mid-Central Plastics, Inc.

     Amounts held for sale of Mid-Central Plastics, Inc., in thousands of dollars, as of December 31, 2002 consist of the following:

		December 31,
		2002
Accounts receivable, net of allowance of $134		$	1,423
Inventories			2,241
Other current assets			427
Property, plant and equipment, net			4,899
	Assets held for sale	$	8,990
Current liabilities		$	2,504
Estimated debt required to be repaid upon sale			3,750
	Liabilities held for sale	$	6,254

As reported on Form 8-K filed on June 23, 2003 and Form 8-K/A filed on July 7, 2003, the Company sold its “assets held for sale” and the “liabilities held for sale” on June 20, 2003. The terms of the transaction were substantially the same as those anticipated in the preparation of the Annual Report on Form 10-K filed March 31, 2003. The sales price, subsequent to a working capital adjustment, was $6.1 million, with $4.8 million received in cash at closing plus notes receivable from the buyer of $98,500, $97,000 and $1,100,000.

The note receivable of $98,500 bears interest at 6.08% and is due on September 20, 2003. The note receivable of $97,000 is due December 20, 2003, and bears interest at 6.18%. The note receivable of $1,100,000 is due June 20, 2006 and bears interest at 15% per annum. Interest for the period of June 20, 2003 through June 20, 2004 shall be 15% payment-in-kind, with interest payable in cash on June 20, 2005, and at the date of maturity, June 20, 2006.

The notes receivable, due from the buyer, are subordinate to required payments due by the buyer to its senior secured lender. Payments received by the Company are assigned to the Harris Bank syndicate, the Company’s senior secured lender.

6

(4) Inventory

     The Company’s inventory, in thousands of dollars, as of June 28, 2003, and December 31, 2002, is summarized as follows:

			December 31,
	June 28, 2003		2002
Raw materials, purchased parts and manufactured components	$	3,132	$	3,645
Work-in-process		6,190		6,087
Finished goods		3,034		4,590
	$	12,356	$	14,322

(5) Earnings Per Share

     The following reflects the reconciliation of the numerators and denominators of the earnings per share and the earnings per share assuming dilution computations:

	Quarter Ended June 28, 2003							Quarter Ended June 29, 2002
	Earnings		Shares		Per Share			(Loss)			Shares		Per Share
	(Numerator)		(Denominator)		Amount			(Numerator)			(Denominator)		Amount
Basic earnings (loss) available to common shareholders	$	140,000		4,660,547	$	0.03		$	(3,566,000	)		4,630,370	$	(0.77	)
Effect of dilutive securities, stock options and warrants				230,739		(0.01	)					—		—
Diluted earnings (loss) available to common shareholders	$	140,000		4,891,286	$	0.02		$	(3,566,000	)		4,630,370	$	(0.77	)

	Six Months Ended June 28, 2003							Six Months Ended June 29, 2002
	Earnings		Shares		Per Share			(Loss)			Shares		Per Share
	(Numerator)		(Denominator)		Amount			(Numerator)			(Denominator)		Amount
Basic earnings (loss) available to common shareholders	$	259,000		4,660,547	$	0.06		$	(12,305,000	)		4,615,774	$	(2.67	)
Effect of dilutive securities, stock options and warrants				228,563		(0.01	)					—		—
Diluted earnings (loss) available to common shareholders	$	259,000		4,889,110	$	0.05		$	(12,305,000	)		4,615,774	$	(2.67	)

     For the quarters ended June 28, 2003 and June 29, 2002, 1,053,915 and 1,435,921, respectively, options and warrants were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.

     For the six month periods ended June 28, 2003 and June 29, 2002, 1,058,634 and 1,447,430, respectively, options and warrants were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.

(6) Segment Reporting

     Due to the previously reported sale of Morton Custom Plastics, LLC., and the June 20, 2003 sale of Mid-Central Plastics, Inc., we have only one remaining segment – the contract metals fabrication segment.

7

(7) Debt

     In February 2002, we entered into a new secured revolving credit facility with a syndicate of banks led by Harris Trust and Savings Bank, as Agent (the Harris syndicate). The revolving credit agreement permitted us to borrow up to a maximum of $21.0 million. The agreement requires payment of a quarterly commitment fee of .50% per annum of the average daily unused portion of the revolving credit facility. Interest is due monthly and is based on bank prime plus 1.5% (effective rate of 5.50% at June 28, 2003). Alternatively, we could select a LIBOR plus 4.0% interest rate. The amount available under the original provisions of the revolving credit facility was limited to 85% of qualified accounts receivable, 50% of eligible inventory, plus $2.5 million of other assets. The revolving credit agreement was originally set to mature on July 1, 2003. As described below, the credit facility has been amended and the maturity date has been extended to April 1, 2004. At June 28, 2003, we had $14.4 million outstanding and $1.4 million available under this credit facility.

     In February 2002, we entered into an amended and restated secured term loan arrangement with the Harris syndicate for a term loan of $32.9 million. The term loan under this financing arrangement is amortized monthly with principal payments ranging from $235,000 to $500,000 and the balance of $24.9 million due originally on July 1, 2003 (now extended to April 1, 2004). Interest is due monthly and is based on bank prime plus 1.5% (effective rate of 5.50% at June 28, 2003). Alternatively, we could select a LIBOR plus 4.0% interest rate.

     The February, 2002 Harris syndicate agreement has been amended four times, most recently on February 28, 2003, and June 20, 2003. Among the key provisions of the February 28, 2003 amendment: (i) extension of the maturity date to April 1, 2004; (ii) revisions in the monthly amortization of principal, with $50,000 payable on February 28, 2003, $100,000 payable on March 31, 2003, $350,000 payable on April 30, 2003, $500,000 payable each month end from May 31, 2003 through December 31, 2003, and $250,000 payable each month end thereafter until the April 1, 2004 maturity date, at which time the term loan balance of $22.2 million will be due. Also, effective February 28, 2003, the limit of eligible inventory under the revolving credit facility was increased to 60% and the amount of other assets eligible became $3.5 million. The Company has begun discussions to obtain loans or funding support from other sources, or extend its existing credit facility, by the maturity date of the current agreement, but there are no assurances that we will be successful in our efforts. Failure to do so could have a material adverse effect on our operations.

     The fourth amendment, dated June 20, 2003, and filed as an exhibit to this Form 10-Q, provided consent by the Harris Bank syndicate to the Mid-Central Plastics, Inc. June 20, 2003 transaction and, upon completion of that transaction, impacted the revolving credit facility as follows: (i) $3.5 million of the $4.8 million cash proceeds received at closing were used to paydown the revolving line-of-credit; (ii) the amount of other assets eligible under the revolving credit facility were reduced from $3.5 million to $2.1 million; and (iii) the maximum amount that can be borrowed under the revolving credit facility was reduced from $21.0 million to $18.8 million.

     In connection with these Harris syndicate loans, we have granted the lender a first lien on all of our accounts receivable, inventory, equipment and various other assets. These Harris syndicate debt agreements contain restrictions on capital expenditures, additional debt or liens, investments, mergers and acquisitions, asset sales and payments such as dividends or stock repurchases. No amounts are available for the payment of dividends at June 28, 2003. The agreements also impose various financial covenants, including financial performance ratios.

(8) Stock Option Plan

     We account for our 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, we would record compensation expense on the date of grant only if the current market price of the underlying stock exceeded the exercise price. We issue all of our options at the current market price on the date of issuance and, accordingly, we have not recognized any stock-based employee compensation cost for stock options in our financial statements.

     The per share weighted-average fair value of stock options granted during the first six months of 2003 and 2002 was $0.13 and $0.29 on the date of grant based on the Black Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 91%, and an expected life of 10 years.

     Had we determined compensation cost based on the fair value at the grant date for our stock options under SFAS No. 123, Accounting for Stock-Based Compensation, our net earnings, in thousands of dollars, would have been reduced to the pro forma amounts indicated below:

8

		Quarter			Quarter
		Ended June			Ended
		28, 2003			June 29, 2002
Net earnings (loss) available to common shareholders:
	As reported	$	140			(3,566	)
	Total stock-based employee compensation expense determined under fair value based method for all awards		(38	)		(54	)
	Pro forma	$	102			(3,620	)
Basic earnings (loss) available to common shareholders per share:
	As reported	$	.03			(.77	)
	Pro forma	$	.02			(.78	)
Diluted earnings (loss) available to common shareholders per share
	As reported	$	.02			(.77	)
	Pro forma	$	.02			(.78	)

		Six Months			Six Months
		Ended June			Ended June
		28, 2003			29, 2002
Net earnings (loss) available to common shareholders:
	As reported	$	259			(12,305	)
	Total stock-based employee compensation expense determined under fair value based method for all awards		(74	)		(108	)
	Pro forma	$	185			(12,413	)
Basic earnings (loss) available to common shareholders per share:
	As reported	$	.06			(2.67	)
	Pro forma	$	.04			(2.69	)
Diluted earnings (loss) available to common shareholders per share:
	As reported	$	.05			(2.67	)
	Pro forma	$	.04			(2.69	)

(9) Impact of Recently Issued Accounting Standards

     On December 31, 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not currently have plans to change to the fair value method of accounting for stock-based compensation. The disclosure requirements have been implemented.

     In January 2003, FASB issued Interpretation 46, Consolidation of Variable Interest Entities (“Interpretation 46”), which addresses consolidation of certain variable interest entities and was effective January 31, 2003. The adoption of Interpretation 46 did not have a material impact on the Company’s financial statements.

     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on the Company’s financial position or results of operations.

9

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within the scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As of the date of this report, the impact of SFAS No. 150 on the balance sheet classification of redeemable preferred stock has not been determined.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis describes changes in the Company’s financial condition since December 31, 2002. The analysis of results of operations compares the quarter and six months ended June 28, 2003 and June 29, 2002. Any references to December 31, 2002 relate to data found in Form 10-K as filed with the Securities and Exchange Commission on March 31, 2003.

RESULTS OF OPERATIONS

SECOND QUARTER, 2003 VERSUS SECOND QUARTER, 2002

     Our net revenues for the second quarter, 2003 were $34.4 million compared to $32.2 million for the second quarter of 2002, an increase of $2.2 million, or 6.7%. The sales increase resulted primarily from increases in unit volume from existing customers.

     Our sales to Deere & Company and Caterpillar Inc., were approximately 92% of our revenues for the second quarter of 2003 and 90% for the second quarter of 2002. Revenues from these customers increased approximately 9% from the same period in 2002.

     Our gross profits for the second quarter, 2003 increased by approximately $160,000, an increase of 3.3%, versus the same three months in 2002. The overall gross profit percentage decreased to 14.6% for the second quarter of 2003 from 15.0% for the second quarter of 2002. The increase in gross profit dollars resulted primarily from increased sales. The modest decrease in the gross profit percentage resulted from continued pricing pressure from customers offset by various continuing manufacturing cost savings initiatives.

     Our selling and administrative expenses for the second quarter, 2003 amounted to $3.3 million, or 9.6% of net sales compared to $3.4 million, or 10.7% of net sales for the second quarter of 2002. The reduced percentage of selling and administrative expense relates primarily to corporate cost savings subsequent to the sales of discontinued operations.

     Our interest expense was $936,000 for the second quarter of 2003, compared with $1.0 million for the second quarter of 2002. While interest rates have remained steady for comparable quarters, a decrease in the overall debt level has decreased interest expense for the comparable quarters.

     Our other income was $171,000 for the second quarter of 2003, compared with other expense of $38,000 for the second quarter of 2002, primarily due to unrealized gains, or losses, on the Company’s interest rate swap instruments. These swap agreements expired at the end of June, 2003.

     For the second quarter of 2003, we recorded a tax provision of $360,000 (approximately 39%) on pre-tax income of $933,000 from continuing operations, and a tax benefit of $35,000 (41%) on a pre-tax loss of $85,000 from discontinued operations. We will utilize net operating loss carry forwards to the extent of taxable income, and we have recorded a resulting decrease in deferred tax assets to reflect this utilization.

     Related to discontinued operations, during the second quarter, 2002, the Company recorded a tax benefit of $1,473,000 as it determined that it would be able to recover taxes paid in previous years under the five-year carryback provisions of the Jobs Creation and Worker Assistance Act of 2002. The amounts recovered relate primarily to pre-acquisition taxes paid by acquired subsidiaries. Additionally, the Company recognized an income tax expense of $2,294,000 during the three months ended June 29, 2002, related to an increase in the valuation allowance for our deferred tax assets. Net deferred tax assets were decreased to reflect lower anticipated utilization of income tax net operating loss carryforwards.

10

     Discontinued operations reflect a pre-tax loss of $85,000 for the second quarter of 2003 compared to a pre-tax loss of $2.8 million in the second quarter of 2002. As described in Note 3 above, the second quarter of 2003 includes only the operations of Mid-Central Plastics, Inc., while the second quarter of 2002 also included the operations of Morton Custom Plastics, LLC, which was sustaining significant losses from its operations.

FIRST SIX MONTHS, 2003 VERSUS FIRST SIX MONTHS, 2002

     Our net revenues for the first six months of 2003 were $66.8 million compared to $61.4 million for the first six months of 2002, an increase of $5.4 million, or 8.7%. The sales increase resulted primarily from increases in unit volume from existing customers.

     Our sales to Deere & Company and Caterpillar Inc., were approximately 91% of our revenues for the first six months of both 2003 and 2002. Revenues from these customers for the first six months of 2003 increased approximately 9% from the first six months of 2002.

     Our gross profits for the first six months of 2003 increased by approximately $600,000, an increase of 7.1%, versus the same six months in 2002. The overall gross profit percentage decreased to 14.4% for the first six months of 2003 from 14.6% for the first six months of 2002. The increase in gross profit dollars resulted primarily from increased sales. The modest decrease in the gross profit percentage resulted from continued pricing pressure from customers offset by various continuing manufacturing cost savings initiatives.

     Our selling and administrative expenses for the first six months of 2003 was $6.6 million, or 9.9% of sales, compared to $6.4 million, or 10.6% of sales for the first six months of 2002. The reduced percentage of selling and administrative expense relates primarily to corporate cost savings subsequent to the sales of discontinued operations.

     Our interest expense was approximately $1.9 million for the first six months of 2003, compared to $2.2 million for the first six months of 2002. While interest rates have remained steady for the comparable periods, a decrease in the overall debt level has decreased interest expense for the comparable periods.

     For the first six months of 2003, we recorded a tax provision of $560,000 (approximately 39%) on pre-tax income of $1.4 million from continuing operations, and a tax provision of $55,000 (39%) on pre-tax income of $140,000 from discontinued operations. We will utilize net operating loss carry forwards to the extent of taxable income, and we have recorded a resulting decrease in deferred tax assets to reflect this utilization.

     Related to discontinued operations. during the first six months of 2002, the Company recorded a tax benefit of $1,473,000 as it determined that it would be able to recover taxes paid in previous years under the five-year carryback provisions of the Jobs Creation and Worker Assistance Act of 2002. The amounts recovered relate primarily to pre-acquisition taxes paid by acquired subsidiaries. Additionally, the Company recognized an income tax expense of $2,294,000 during the six months ended June 29, 2002, related to an increase in the valuation allowance for deferred tax assets. Net deferred tax assets were decreased to reflect lower anticipated utilization of income tax net operating loss carryforwards.

     Discontinued operations reflect pre-tax income of $140,000 for the first six months of 2003 compared to a pre-tax loss of $3.3 million in the first six months of 2002. As described in Note 3 above, the first six months of 2003 includes only the operations of Mid-Central Plastics, Inc., while the first six months of 2002 also included the operations of Morton Custom Plastics, LLC, which was sustaining significant losses from its operations.

LIQUIDITY AND CAPITAL RESOURCES

     Our consolidated working capital at June 28, 2003 was a deficit of $39.0 million compared to a working capital deficit of $2.3 million at December 31, 2002. This represents a decrease in working capital of approximately $36.7 million. Our credit facility matures on April 1, 2004, and we have accordingly classified the related term debt and revolving debt as current liabilities. As discussed below, we are currently discussing with both our existing lender, and other potential lenders, the refinancing of the debt that matures on April 1, 2004.

     In February 2002, we entered into a new secured revolving credit facility with a syndicate of banks led by Harris Trust and Savings Bank, as Agent (the Harris syndicate). The revolving credit agreement permitted us to borrow up to a maximum of $21.0 million. The agreement requires payment of a quarterly commitment fee of .50% per annum of the average daily unused portion of the revolving credit facility. Interest is due monthly and is based on bank prime plus 1.5% (effective rate of 5.50% at June 28, 2003). Alternatively, we could select a LIBOR plus 4.0% interest rate. The amount available under the original provisions of the revolving credit facility was

11

limited to 85% of qualified accounts receivable, 50% of eligible inventory, plus $2.5 million of other assets. The revolving credit agreement was originally set to mature on July 1, 2003. As described below, the credit facility has been amended and the maturity date has been extended to April 1, 2004. At June 28, 2003, we had $14.4 million outstanding and $1.4 million available under this credit facility.

     In February 2002, we entered into an amended and restated secured term loan arrangement with the Harris syndicate for a term loan of $32.9 million. The term loan under this financing arrangement is amortized monthly with principal payments ranging from $235,000 to $500,000 and the balance of $24.9 million due originally on July 1, 2003 (now extended to April 1, 2004). Interest is due monthly and is based on bank prime plus 1.5% (effective rate of 5.50% at June 28, 2003). Alternatively, we could select a LIBOR plus 4.0% interest rate.

     The February, 2002 Harris syndicate agreement has been amended four times, most recently on February 28, 2003, and June 20, 2003. Among the key provisions of the February 28, 2003 amendment: (i) extension of the maturity date to April 1, 2004; (ii) revisions in the monthly amortization of principal, with $50,000 payable on February 28, 2003, $100,000 payable on March 31, 2003, $350,000 payable on April 30, 2003, $500,000 payable each month end from May 31, 2003 through December 31, 2003, and $250,000 payable each month end thereafter until the April 1, 2004 maturity date, at which time the term loan balance of $22.2 million will be due. Also, effective February 28, 2003, the limit of eligible inventory under the revolving credit facility was increased to 60% and the amount of other assets eligible became $3.5 million. The Company has begun discussions to obtain loans or funding support from other sources, or extend its existing credit facility, by the maturity date of the current agreement, but there are no assurances that we will be successful in our efforts. Failure to do so could have a material adverse effect on our operations.

     The fourth amendment, dated June 20, 2003, and filed as an exhibit to this Form 10-Q, provided consent by the Harris Bank syndicate to the Mid-Central Plastics, Inc. June 20, 2003 transaction and, upon completion of that transaction, impacted the revolving credit facility as follows: (i) $3.5 million of the $4.8 million cash proceeds received at closing were used to paydown the revolving line-of-credit; (ii) the amount of other assets eligible under the revolving credit facility were reduced from $3.5 million to $2.1 million; and (iii) the maximum amount that can be borrowed under the revolving credit facility was reduced from $21.0 million to $18.8 million.

     In connection with these Harris syndicate loans, we have granted the lender a first lien on all of our accounts receivable, inventory, equipment and various other assets. These Harris syndicate debt agreements contain restrictions on capital expenditures, additional debt or liens, investments, mergers and acquisitions, asset sales and payments such as dividends or stock repurchases. No amounts are available for the payment of dividends at June 28, 2003. The agreements also impose various financial covenants, including financial performance ratios.

     In connection with the Harris syndicate financing, we had two fixed interest rate swap agreements with a commercial bank (the “counter party”). The first agreement expired May 31, 2003, and the second agreement expired June 30, 2003.

     Historically, we have met our near term liquidity requirements with cash flow from operations, the Harris syndicate line of credit, and management of our working capital to reflect current levels of operations. The national economic slowdown has increased pressure on these sources of liquidity. The February, 2002 Harris syndicate revolving credit facility and term loans replaced existing credit facilities and did not provide additional availability. We anticipate that the February, 2002 agreements with the Harris syndicate, as amended on February 28, 2003 and June 20, 2003, will assist us in meeting our liquidity requirements through the term of these agreements.

Preferred Stock

     As part of the financing for the 1999 Morton Custom Plastics, LLC acquisition from Worthington Industries, Inc. (Worthington) , we issued 10,000 shares of redeemable preferred stock, which becomes redeemable on April 15, 2004 at $1,000 per share plus any dividends accrued since April 15, 1999. We recorded the $10 million face value preferred stock at its fair value of $4.25 million. We are accreting the discount over a five year period using the effective yield method. Dividends are payable in kind at the rate of 8% per annum. Certain provisions of the agreement with Worthington preclude the payment of dividends, and no dividends have been accrued since 1999. There are legal proceedings related to certain Worthington matters as described in Part II, Item 1. We are continuing negotiations with Worthington to resolve all of the issues presented by the preferred stock within the limitations of our available liquidity in 2004, but there are no assurances that we will be successful in our efforts.

Capital Expenditures

     We incurred $1.9 million of capital expenditures during the first six months of 2003, including $1.7 related to continuing operations, primarily for the update and purchase of manufacturing equipment.

     We estimate that our capital expenditures in 2003 will total approximately $3.0 million, of which $1.4 million will be for new production equipment and the remaining $1.6 million will be for normal replacement items.

12

Significant Cash Commitments

     The following table summarizes the Company’s contractual obligations at June 28, 2003:

		Payments Due by Period
				Less than		1 - 3		4 - 5		After 5
(In Thousands)		Total		1 Year		Years		Years		Years
Bank indebtedness
	Term loan	$	26,351		26,351		—		—		—
	Revolving line of credit		14,400		14,400		—		—		—
Other debt obligations			2,258		447		1,208		603		—
Redeemable preferred stock			9,323		9,323		—		—		—
Operating leases			18,213		5,647		10,624		1,942		—
Total contractual cash obligations		$	70,545		56,168		11,832		2,545		—

     Under our bank credit facility, we have $618,000 standby letters of credit outstanding at June 28, 2003 in connection with lease obligations. Management expects that cash flow from operations and availability under its bank revolving line of credit will assist us in meeting our liquidity requirements through the term of its bank credit facility. At June 28, 2003, we had $1.4 million in unused availability under the bank revolving line of credit. Our credit facility with the Harris Bank syndicate matures on April 1, 2004. The Company has begun discussions to obtain loans or funding support from other sources, or extend its existing credit facility by the maturity date of the current agreement, but there are no assurances that we will be successful in our efforts. Failure to do so could have a material adverse effect on our operations.

     As described previously in the Financial Position and Liquidity section of this Form 10-Q, the preferred stock issued by the Company becomes redeemable on April 15, 2004. There are legal proceedings related to certain Worthington matters as described in Part II, Item 1. We are continuing negotiations with Worthington to resolve all of the issues presented by the preferred stock, within the limitations of our available liquidity in 2004, but there are no assurances that we will be successful in our efforts.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     On December 31, 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not currently have plans to change to the fair value method of accounting for stock-based compensation. The disclosure requirements have been implemented.

     In January 2003, FASB issued Interpretation 46, Consolidation of Variable Interest Entities (“Interpretation 46”), which addresses consolidation of certain variable interest entities and was effective January 31, 2003. The adoption of Interpretation 46 did not have a material impact on the Company’s financial statements.

     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on the Company’s financial position or results of operations.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within the scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As of the date of this report, the impact of SFAS No. 150 on the balance sheet classification of redeemable preferred stock has not been determined.

13

FORWARD LOOKING STATEMENTS

     “Safe Harbor” Statement Under The Private Securities Litigation Reform Act Of 1995: This quarterly report 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 statements containing the words “anticipates,” “believes,” “intends,” “estimates,” “expects,” “projects” and similar words. The forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from any future results expressed or implied by such forward looking statements. Such factors include, among others, the following: the loss of certain significant customers; the cyclicality of our construction and agricultural sales; risks associated with our acquisitions; the orders of our two major customers; general economic and business conditions, both nationally and in the markets in which we operate or will operate; competition; and other factors referenced in the Company’s reports and registration statements filed with the Securities and Exchange Commission. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward looking statements. The forward looking statements contained herein speak only of the Company’s expectation as of the date of this quarterly report. We disclaim any obligations to update any such factors or publicly announce the result of any revisions to any of the forward looking statements contained herein to reflect future events or developments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We are exposed to interest rate changes primarily as a result of our lines of credit and long term debt used for maintaining liquidity, funding capital expenditures, and funding the growth of our business. 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 entered into a financing agreement with a bank syndicate. This agreement contains a term loan and a revolving credit facility. Interest is based on our lead bank’s prime rate plus an applicable variable margin.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

     Within the 90 days prior to the date of this report, we carried out an evaluation of the effectiveness of the design and operation of the our “disclosure controls and procedures”, as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-14(c) and 15d-14(c), under the supervision and with the participation of our management, including our Chief Executive Officer and Vice President of Finance. Based upon that evaluation, our Chief Executive Officer and Vice President of Finance concluded that our disclosure controls and procedures are effective.

     Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities and Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure.

Changes in internal controls

     We seek to maintain a system of internal accounting controls that are intended to provide reasonable assurances that our books and records accurately reflect our transactions and that our established policies and procedures are followed. There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the date we carried out this evaluation.

14

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On May 1, 2000, Worthington Industries, Inc. (Worthington) filed suit (in the United States District Court for the Southern District of Ohio, Eastern Division) against us and Morton Custom Plastics, LLC (“MCP, LLC”) related to MCP, LLC’s 1999 acquisition of the non-automotive plastics business from Worthington. Worthington claimed that it was owed additional amounts under the sale agreement and a related service agreement, and that it was owed dividends on shares of our preferred stock that it received. We believed that under the terms of the agreement, none of the amounts claimed by Worthington were owed by us. The case has been stayed because of the bankruptcy of MCP, LLC, although Worthington may attempt to continue the litigation against us on the dividend matter.

ITEM 2. CHANGES IN SECURITIES

     On September 20, 2000, the Company issued warrants to purchase 238,548 shares of its Class A Common Stock at an exercise price of $.01 per share. Under the terms of the February, 2003 amendment with Harris Bank, the warrants may be exercised at any time through December 31, 2005.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Morton Industrial Group, Inc., held its Annual Meeting on June 10, 2003 to:

1.	Elect three directors to serve for one-year terms until the Annual Meeting of Shareholders in 2004.
2.	Consider and act upon a proposal to ratify the selection of KPMG, LLP as independent auditors of the Company for 2003.

The results of the shareholders’ votes on each of these matters appear in the following tables.

Election of Directors:

	For		Against		Abstained		Total
William D. Morton		4,968,952		91,281		—		5,060,233
Fred W. Broling		4,969,096		91,137		—		5,060,233
Mark W. Mealy		4,969,050		91,183		—		5,060,233

Ratification of Selection of Independent Auditor:

	For		Against		Abstained		Total
KPMG LLP		5,049,808		7,437		2,988		5,060,233

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

11.	The computation can be determined from this report.
31.1	Certification pursuant to Rule 13a-14(a)
31.2	Certification pursuant to Rule 13a-14(a)
32.1	Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Fourth Amendment to Amended and Restated Credit Agreement

(B) Reports on Form 8-K.

Form 8-K filed on May 30, 2003 announcing the pending sale of Mid-Central Plastics, Inc.

Form 8-K filed on June 23, 2003 announcing the completion of the sale of Mid-Central Plastics, Inc.

Form 8-K/A filed on July 7, 2003 providing Item 7 information for the sale of Mid-Central Plastics, Inc.

15

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MORTON INDUSTRIAL GROUP, INC.
	By:	/s/ RODNEY B. HARRISON
		Rodney B. Harrison
		Vice President of Finance
Dated: August 11, 2003

16 EX-31.1 3 c78807exv31w1.htm CERTIFICATION

Exhibit 31.1

I, William D. Morton, as Chairman and Chief Executive Officer of Morton Industrial Group, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Morton Industrial Group, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ William D. Morton William D. Morton
Chairman and Chief Executive Officer
August 11, 2003

EX-31.2 4 c78807exv31w2.htm CERTIFICATION

Exhibit 31.2

I, Rodney B. Harrison, as Vice President of Finance of Morton Industrial Group, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Morton Industrial Group, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Rodney B. Harrison
Rodney B. Harrison
Vice President of Finance
August 11, 2003

EX-32.1 5 c78807exv32w1.htm SECTION 906 CERTIFICATION

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Morton Industrial Group, Inc. (the “Company”) on Form 10-Q for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William D. Morton, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William D. Morton

William D. Morton
Chairman and Chief Executive Officer
August 11, 2003

     This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2 6 c78807exv32w2.htm SECTION 906 CERTIFICATION

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Morton Industrial Group, Inc. (the “Company”) on Form 10-Q for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rodney B. Harrison, Vice President of Finance of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Rodney B. Harrison

Rodney B. Harrison
Vice President of Finance
August 11, 2003

     This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-99.1 7 c78807exv99w1.htm 4TH AMENDMENT TO AMENDED & RESTATED CREDIT AGMT

EXHIBIT 99.1

FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

     This Fourth Amendment to Amended and Restated Credit Agreement (herein, the “Amendment") is made as of June      , 2003, by and among Morton Industrial Group, Inc., a Georgia corporation (the “Borrower"), the Lenders party to the Credit Agreement hereinafter identified and defined, and Harris Trust and Savings Bank, as Agent for the Lenders (in such capacity, the “Agent").

RECITALS

     A.     The Lenders currently extend credit to the Borrower on the terms and conditions set forth in that certain Amended and Restated Credit Agreement dated as of February 25, 2002, as amended, by and among the Borrower, the Guarantors, the Lenders, and the Agent (the “Credit Agreement"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement.

     B.     The Borrower has requested that the Lenders consent to the sale by Mid-Central Plastics, Inc. (“Mid-Central") to Innovative Injection Technologies, Inc. (the “Buyer") of substantially all of its assets, including without limitation its right, title and interest in and to its real property and associated improvements and certain personal property associated therewith located at 2360 Grand Avenue, West Des Moines, Iowa (the “Mid-Central Sale"), and the Lenders are willing to consent to such sale, all on the terms and conditions herein set forth.

     C.     The Borrower has requested that the Lenders make certain other changes to terms and conditions of the Credit Agreement, and the Lenders are willing to agree to such changes, all on the terms and conditions herein set forth.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. AMENDMENTS.

     Subject to the satisfaction of the conditions precedent set forth in Section 3 below, the Credit Agreement shall be and hereby is amended as follows:

     1.1. A new Section 3.3(e) is hereby added to the Credit Agreement, reading in its entirety as follows:

     (e) Mid-Central Notes. On the date of any receipt by Mid-Central, the Borrower or any other Subsidiary of the Borrower of any principal payment on the Mid-Central Notes, the Borrower will immediately make a mandatory prepayment in an amount equal to 100% of such principal payment received, such prepayment to be allocated to the Term Loans until repaid in full,

and then to prepay the Revolving Loans and prefund any outstanding Letters of Credit.

     1.2. Section 5.1 of the Credit Agreement is hereby amended by adding a new definition of “Fourth Amendment” thereto in its appropriate order in the alphabetical sequence, such definition to read in its entirety as follows:

     “Fourth Amendment” means that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of June      , 2003 among the Borrower, the Lenders and Harris Trust and Savings Bank, as Agent.

     1.3. Section 5.1 of the Credit Agreement is hereby amended by adding a new definition of “Fourth Amendment Effective Date” thereto in its appropriate order in the alphabetical sequence, such definition to read in its entirety as follows:

     “Fourth Amendment Effective Date” means the date upon which the Fourth Amendment becomes effective pursuant to its terms.

     1.4. Section 5.1 of the Credit Agreement is hereby amended by adding a new definition of “Mid-Central Sale” thereto in its appropriate order in the alphabetical sequence, such definition to read in its entirety as follows:

     “Mid-Central Sale” is used herein as defined in the Fourth Amendment.

     1.5. Section 5.1 of the Credit Agreement is hereby amended by adding a new definition of “Mid-Central Notes” thereto in its appropriate order in the alphabetical sequence, such definition to read in its entirety as follows:

     “Mid-Central Notes” means those certain promissory notes received by Mid-Central as partial consideration for the Mid-Central Sale, including without limitation the Three Month Note, the Six Month Note and the Subordinated Note as defined in the asset purchase agreement for the Mid-Central Sale, all of which are subject to the terms of the Wells Fargo Subordination Agreement.

     1.6. Section 5.1 of the Credit Agreement is hereby amended by adding a new definition of “Wells Fargo Subordination Agreement” thereto in its appropriate order in the alphabetical sequence, such definition to read in its entirety as follows:

     “Wells Fargo Subordination Agreement” means that certain Subordination Agreement dated as of June 20, 2003 made by the Borrower for the benefit of Wells Fargo Business Credit, Inc. (“Wells Fargo") and relating to the Mid-Central Notes, in the form delivered to the Agent prior to the Fourth Amendment Effective Date.

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     1.7. The definition of “Other Asset Value” set forth in Section 5.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

     “Other Asset Value” means, from and after the Fourth Amendment Effective Date, $2,121,000, provided that such Other Asset Value shall be further reduced (but not below $0), effective 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and 90 days after the end of the fourth fiscal quarter of each fiscal year of the Borrower, by 50% of the amount by which EBITDA for such fiscal quarter exceeds the projected EBITDA for such fiscal quarter as identified in the Approved Base Case.

     1.8. The definition of “Revolving Credit Commitments” set forth in Section 5.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

     “Revolving Credit Commitments” shall mean the commitments of each Lender to extend credit under the Revolving Credit in the aggregate amount of $18,800,000 for all the Lenders (each Lender’s share of the total Revolving Credit Commitments to be in the amount and percentage set forth opposite such Lender’s name on Schedule 1 to the Fourth Amendment and, if applicable, opposite such Lender’s signature on the relevant Assignment Agreement delivered pursuant to Section 12.15 hereof) (subject to the paragraph immediately following).

     All increases or reductions in the Revolving Credit Commitments shall increase or decrease the Revolving Credit Commitments of the Lenders pro rata in accordance with their Revolver Percentages.

     1.9. Section 8.10 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

     Section 8.10. Capital Expenditures. The Borrower will not, nor will it permit any Subsidiary to, expend or (without duplication) become obligated to expend, in each case for Capital Expenditures aggregating for the Borrower and its Subsidiaries (taken together) in excess of $3,500,000 during fiscal 2003 and $1,000,000 during the period from January 1, 2004 through and including the Termination Date.

     1.10. A new Section 8.32 is hereby added to the Credit Agreement immediately following the existing Section 8.31, reading in its entirety as follows:

     Section 8.32. Mid-Central Debt. The Borrower will not, nor will it permit Mid-Central or any other Subsidiary to, amend or modify any of the terms or provisions of, or agree to defer or forgive any payments otherwise due under, any of the Mid-Central Notes, except to the extent required by the Wells Fargo Subordination Agreement.

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SECTION 2. CONSENT AND WAIVER.

     The Lenders hereby consent to the Mid-Central Sale and waive any term or provision of the Credit Agreement or any other Loan Document which would otherwise be violated thereby, provided that it is a condition to the Lenders’ consent hereunder that (i) the Mid-Central Sale occurs concurrently with the effectiveness of this Amendment on the terms and conditions set forth in the draft of that certain Asset Purchase Agreement dated as of May 29, 2003 between Mid-Central and the Buyer delivered to the Agent on or about      , 2003, without any amendment to the terms set forth therein or any material waiver of the conditions set forth therein except as otherwise agreed by the Required Lenders, and (ii) not less than $3,500,000 of the net cash proceeds received by Mid-Central as a result of the Mid-Central Sale are distributed by Mid-Central to the Borrower and then paid by the Borrower to the Agent as a principal payment on the Revolving Loans. The Lenders agree that the net cash proceeds received pursuant to the preceding sentence will be applied as a prepayment on the Revolving Loans notwithstanding any contrary provision of Section 3.3(c) of the Credit Agreement regarding the application of such proceeds. Upon the closing of the Mid-Central Sale, the receipt by the Agent of the net cash proceeds described in this Section 2 and the satisfaction of the other conditions set forth in Section 3 hereof, the Agent will and is hereby directed by the Lenders to deliver appropriate mortgage releases and UCC partial releases and such other documents and instruments as may be necessary to release its security interest in the property sold pursuant to the Mid-Central Sale.

SECTION 3. CONDITIONS PRECEDENT.

     The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent:

     3.1. The Borrower, the Agent, and the Lenders shall have executed and delivered this Amendment, and the Guarantors shall have executed and delivered their consent to this Amendment in the space provided for that purpose below.

     3.2. Legal matters incident to this Amendment shall be satisfactory to the Agent and the Lenders and their counsel.

     3.3. The Borrower shall have paid all fees and expenses of counsel to the Agent with respect to the preparation of this Amendment as well as any prior fees and charges of counsel to the Agent incurred prior to the date hereof which remain outstanding and unpaid.

     3.4. The Mid-Central Sale shall occur concurrently with the effectiveness of this Amendment and in compliance with the terms of Section 2 hereof and the Agent shall have received a cash payment on the Loans from the cash proceeds thereof in an amount not less than $3,500,000.

     3.5. The Borrower shall cause to be delivered to the Agent the originals of each of the Mid-Central Notes (as defined in Section 1.5 hereof), together with an allonge for each endorsing the same to the Agent as a pledge of collateral under and pursuant to the terms of the Security Agreement.

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SECTION 4. REPRESENTATIONS.

     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, and after giving effect to this Amendment, (a) the representations and warranties set forth in Section 6 of the Credit Agreement are and shall be and remain true and correct in all material respects (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 (b) 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.

SECTION 5. RELEASE OF CLAIMS.

     TO INDUCE THE LENDERS AND THE AGENT TO ENTER INTO THIS AMENDMENT, THE BORROWER AND THE GUARANTORS HEREBY RELEASE, ACQUIT, AND FOREVER DISCHARGE THE LENDERS, THE AGENT AND THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, ATTORNEYS, ADVISORS, CONSULTANTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL LIABILITIES, CLAIMS, DEMANDS, ACTIONS, AND CAUSES OF ACTION OF ANY KIND (IF THERE ARE ANY), WHETHER ABSOLUTE OR CONTINGENT, DUE OR TO BECOME DUE, DISPUTED OR UNDISPUTED, AT LAW OR IN EQUITY, THAT THEY NOW HAVE OR EVER HAD AGAINST THE LENDERS, THE AGENT AND THE OTHER PARTIES IDENTIFIED ABOVE, OR ANY ONE OR MORE OF THEM INDIVIDUALLY, UNDER OR IN CONNECTION WITH THE CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

SECTION 6. MISCELLANEOUS.

     6.1. The Borrower has heretofore executed and delivered to the Agent and the Lenders certain of the Collateral Documents. The Borrower hereby acknowledges and agrees that, notwithstanding the execution and delivery of this Amendment, the Collateral Documents remain in full force and effect and the rights and remedies of the Agent and the Lenders thereunder, the obligations of the Borrower thereunder, and the liens and security interests created and provided for thereunder remain in full force and effect and shall not be affected, impaired, or discharged hereby, except to the extent that the liens of the Agent on the property sold in the Mid-Central Sale are released in accordance with the terms hereof. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment.

     6.2. 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.

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     6.3. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses incurred by the Agent and the Lenders 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.

     6.4. 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.

[SIGNATURE PAGES TO FOLLOW]

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     This Fourth Amendment to Amended and Restated Credit Agreement is entered into by the parties hereto as of the date and year first above written.

MORTON INDUSTRIAL GROUP, INC.
By
	Name
	Title
Accepted and agreed to.
HARRIS TRUST AND SAVINGS BANK
By
	Name
	Title
BRANCH BANKING & TRUST CO.
By
	Name
	Title
U.S. BANK NATIONAL ASSOCIATION   f/k/a Firstar Bank, N.A.
By
	Name
	Title
LASALLE BANK NATIONAL ASSOCIATION
By
	Name
	Title
NATIONAL CITY BANK
By
	Name
	Title

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GUARANTOR’S ACKNOWLEDGEMENT AND CONSENT

     Each of the undersigned hereby acknowledges and agrees that it is a Guarantor under the terms of Section 11 of the Credit Agreement and, as such has executed and delivered certain Collateral Documents pursuant to the Credit Agreement. The undersigned hereby consent to the Fourth Amendment to Amended and Restated Credit Agreement as set forth above and agree to the terms thereof, including, without limitation, Section 5 thereof, and the undersigned hereby confirm that their guaranties and the Collateral Documents executed by them, and all of the obligations of the undersigned thereunder, remain in full force and effect. The undersigned further agree that the consent of the undersigned to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained. The undersigned acknowledge the Lenders are relying on this acknowledgement and consent in entering into the Fourth Amendment to Amended and Restated Credit Agreement with the Borrower.

MORTON METALCRAFT CO.
By
	Name
	Title
MORTON METALCRAFT CO. OF NORTH      CAROLINA
By
	Name
	Title
MORTON METALCRAFT CO. OF SOUTH       CAROLINA
By
	Name
	Title
MID-CENTRAL PLASTICS, INC.
By
	Name
	Title

B&W METAL FABRICATORS, INC.
By
	Name
	Title

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SCHEDULE 1
TO FOURTH AMENDMENT

REVOLVING CREDIT COMMITMENTS

LENDER	PERCENTAGE			AMOUNT
Harris Trust and Savings Bank		41.666667	%	$	7,833,333.34
Branch Banking & Trust Co.		16.666667	%	$	3,133,333.33
U.S. Bank National Association		13.888889	%	$	2,611,111.11
LaSalle Bank National Association		16.666667	%	$	3,133,333.33
National City Bank		11.111111	%	$	2,088,888.89

-----END PRIVACY-ENHANCED MESSAGE-----

EX-31.1

Certification

EX-31.2

Certification

EX-32.1

Section 906 Certification

EX-32.2

Section 906 Certification

EX-99.1

4th Amendment to Amended & Restated Credit Agmt