-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9CJYg0qaQE1U2ufps5Z1ND4o5vqBahXlh63MgmydMQgdn3IreNwoakxlKhPwpun 6MCejOOxg8LnGR1Fki1TmQ== 0000950137-98-003091.txt : 19980812 0000950137-98-003091.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950137-98-003091 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980529 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORTON INDUSTRIAL GROUP INC CENTRAL INDEX KEY: 0000064247 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 380811650 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-13198 FILM NUMBER: 98682516 BUSINESS ADDRESS: STREET 1: 1021 WEST BIRCHWOOD STREET CITY: MORTON STATE: IL ZIP: 61550 BUSINESS PHONE: 3092667176 MAIL ADDRESS: STREET 1: 1021 WEST BIRCHWOOD STREET CITY: MORTON STATE: IL ZIP: 61550 FORMER COMPANY: FORMER CONFORMED NAME: MLX CORP /GA DATE OF NAME CHANGE: 19960823 FORMER COMPANY: FORMER CONFORMED NAME: MCLOUTH STEEL CORP DATE OF NAME CHANGE: 19850212 8-K/A 1 8-K/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 29, 1998 MORTON INDUSTRIAL GROUP, INC. (Exact name of registrant as specified in its charter) Georgia 0-13198 38-0811650 - ----------------------------------------------------------------------------- State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization File Number) Identification No.) 1021 West Birchwood, Morton, Illinois 61550 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code 309-266-7176 - ----------------------------------------------------------------------------- (Former name or former address, if changed since last report.) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. MID-CENTRAL PLASTICS, INC. ACQUISITION As previously reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 1998, the Company acquired all of the issued and outstanding capital stock of Mid-Central Plastics, Inc., of West Des Moines, Iowa, on May 29, 1998. This Current Report on Form 8-K/A amends the earlier filing by adding the financial statements identified in Item 7. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. The following financial statements are filed as Exhibits to this Form 8-K/A:
Exhibit No. Document ----------- -------- - ----------------------------------------------------------------------------- 99.1 Audited Financial Statements of Mid-Central Plastics, Inc., for the period ended May 29, 1998 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 99.2 Audited Financial Statements of Mid-Central Plastics, Inc., for the years ended December 31, 1997, 1996, and 1995 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 99.3 Pro Forma Condensed Combined Balance Sheet and Statement of Earnings - -----------------------------------------------------------------------------
2 3 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MORTON INDUSTRIAL GROUP, INC. (Registrant) Date: August 11, 1998 By: ---------------------------------------- Daryl R. Lindemann Vice President-Finance, Secretary, And Treasurer 3 4 EXHIBIT INDEX - ----------------------------------------------------------------------------- 99.1 Audited Financial Statements of Mid-Central Plastics, Inc., for the period ended May 29, 1998 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 99.2 Audited Financial Statements of Mid-Central Plastics, Inc., for the years ended December 31, 1997, 1996, and 1995 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 99.3 Pro Forma Condensed Combined Balance Sheet and Statement of Earnings - -----------------------------------------------------------------------------
4 EX-99.1 2 FIN. STMTS. MAY 29, 1998 1 Exhibit 99.1 MID-CENTRAL PLASTICS, INC. FINANCIAL STATEMENTS MAY 29, 1998 2 MID-CENTRAL PLASTICS, INC. For the Period January 1, 1998 to May 29, 1998 CONTENTS
Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Statement of Income 2 Balance Sheet 3 Statement of Retained Earnings 4 Statement of Cash Flows 5 NOTES TO THE FINANCIAL STATEMENTS 6-10
3 Board of Directors and Stockholders Mid-Central Plastics, Inc. INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheet of Mid-Central Plastics, Inc. as of May 29, 1998, and the related statements of income, retained earnings and cash flows for the period January 1, 1998 to May 29, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mid-Central Plastics, Inc. as of May 29, 1998, and the results of its operations and its cash flows for the period January 1, 1998 to May 29, 1998, in conformity with generally accepted accounting principles. /s/Northup, Haines, Kaduce, Schmid, Macklin, P.C. June 19, 1998 West Des Moines, Iowa -1- 4 MID-CENTRAL PLASTICS, INC. STATEMENT OF INCOME For the Period January 1, 1998 to May 29, 1998 SALES Plastic $12,964,323 Molds 606,248 Raw material 92,632 ----------- TOTAL SALES 13,663,203 COST OF SALES 11,405,717 ----------- GROSS PROFIT 2,257,486 ----------- EXPENSES Selling 295,402 General and administrative 830,219 ----------- TOTAL EXPENSES 1,125,621 ----------- OPERATING INCOME 1,131,865 ----------- OTHER INCOME (EXPENSE) Interest expense (96,539) Loss on sale of assets (2,460) Interest income 8,364 Miscellaneous income 30,465 ----------- OTHER EXPENSE, NET (60,170) ----------- INCOME BEFORE INCOME TAXES 1,071,695 PROVISION FOR INCOME TAXES - Note 3 427,671 ----------- NET INCOME $ 644,024 =========== EARNINGS PER SHARE - Basic and Diluted $ 25.76 =========== WEIGHTED AVERAGES NUMBER OF COMMON SHARES OUTSTANDING - Basic and Diluted 24,999 ===========
See Notes to Financial Statements -2- 5 MID-CENTRAL PLASTICS, INC. BALANCE SHEETS ASSETS May 29, 1998 CURRENT ASSETS Cash and cash equivalents $ 632,257 Accounts receivable 3,529,316 Inventories - Note 1 2,635,002 Mold deposits - Note 2 222,709 Prepaid expenses 129,335 Deferred income tax benefit - Note 3 23,230 ----------- TOTAL CURRENT ASSETS 7,171,849 ----------- PROPERTY, PLANT AND EQUIPMENT, AT COST - Note 6 Land 30,851 Parking lot improvements 304,627 Buildings 2,215,046 Machinery 9,600,164 Office equipment 1,142,237 Automobiles and trucks 79,247 Equipment under construction 30,511 ----------- 13,402,683 Less accumulated depreciation 9,075,164 ----------- PROPERTY, PLANT AND EQUIPMENT, NET 4,327,519 ----------- OTHER ASSETS Cash surrender value, officer life insurance 59,711 Employee advances 1,569 Notes receivable, stockholders - Note 4 346,316 Prepaid expenses 21,623 Deferred income tax benefit - Note 3 41,764 Non compete agreement, net of $42,149 accumulated amortization 287,715 ----------- TOTAL OTHER ASSETS 758,698 ----------- $12,258,066 ===========
See Notes to Financial Statements -3- 6 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable, bank - Note 5 $ 1,550,321 Accounts payable 969,582 Other accrued expenses 560,313 Accrued income taxes 176,012 Current maturities of long term debt - Note 6 240,668 Current maturities of deferred compensation payable - Note 7 61,132 ----------- TOTAL CURRENT LIABILITIES 3,558,028 ----------- LONG TERM DEBT - Note 6 2,007,880 ----------- DEFERRED COMPENSATION PAYABLE - Note 7 108,937 ----------- COMMITMENTS AND CONTINGENCIES - Note 8 and Note 11 STOCKHOLDERS' EQUITY Common stock, Class A, $10 par value, authorized 200,000 shares, issued 15,000 shares 150,000 Common stock, Class B, $10 par value, authorized 200,000 shares, issued 15,000 shares 150,000 Paid-in capital 1,520 Retained earnings 6,724,173 ----------- 7,025,693 LESS TREASURY STOCK, AT COST Common stock, Class B, 5,001 shares 442,472 ----------- TOTAL STOCKHOLDERS' EQUITY 6,583,221 ----------- $12,258,066 ===========
-3- 7 MID-CENTRAL PLASTICS, INC. STATEMENT OF RETAINED EARNINGS For the Period January 1, 1998 to May 29, 1998
BALANCE Beginning of period $6,080,149 NET INCOME FOR PERIOD 644,024 ---------- BALANCE End of period $6,724,173 ==========
See Notes to Financial Statements -4- 8 MID-CENTRAL PLASTICS, INC. STATEMENT OF CASH FLOWS For the Period January 1, 1998 to May 29, 1998 Increase (Decrease) in Cash CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 644,024 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 275,546 Amortization 9,163 Deferred income taxes 9,012 Imputed interest on deferred compensation 6,579 Loss on sale of assets 2,460 Increase in cash value of life insurance (5,625) Changes in assets and liabilities: Accounts receivable (594,654) Inventories 285,570 Prepaid expenses and mold deposits (200,158) Accounts payable and accrued expenses (686,958) Accrued income taxes 108,779 Deferred compensation paid (31,250) ---------- Net Cash Used in Operating Activities (177,512) ---------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (691,544) Advances to stockholder (30,783) Decrease in employee advances 3,422 Advance payment on auto leases (36,579) ---------- Net Cash Used in Investing Activities (755,484) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Additions to operating line of credit, net 811,533 Payments on long term debt (94,380) Proceeds from long term debt 828,000 ---------- Net Cash Provided by Financing Activities 1,545,153 ---------- NET CHANGE IN CASH 612,157 CASH, BEGINNING OF PERIOD 20,100 ---------- CASH, END OF PERIOD $ 632,257 ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 89,059 Income taxes 309,883
See Notes to Financial Statements -5- 9 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS For the Period January 1, 1998 to May 29, 1998 DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Mid-Central Plastics, Inc., founded in 1960, is a manufacturer and molder of custom plastic component parts. Most of the Company's business activity is with customers located within Iowa and surrounding states. INVENTORIES - Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Plant overhead is allocated to finished goods inventory in direct proportion to the plant wages included in finished goods. ACCOUNTS RECEIVABLE - The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. PREPAID AUTO LEASE - The Company is amortizing the cost of advance automobile lease payments over the twenty-four month term of the related lease. FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts receivable, accounts payable, notes payable and long-term debt, to approximate the fair value of the respective assets and liabilities. EARNINGS PER SHARE - Earning per share is computed under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, which was adopted retroactively by the Company at December 31, 1994. Amounts reported as earnings per share for the period ended May 29, 1998 reflect the earnings available to stockholders for the period divided by the weighted average number of common shares outstanding during the period. The Company has no dilative securities as defined under SFAS No 128, therefore, a single earnings per share amount is presented in the financial statements. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at the lower of depreciated cost or fair market value. Expenditures for property and those which substantially increase useful lives are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in income. Depreciation is provided by both the straight-line and declining balance methods over estimated useful lives ranging from five to ten years on equipment and fifteen to thirty-three years on buildings and improvements. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from estimates that were used. -6- 10 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS For the Period January 1, 1998 to May 29, 1998 AMORTIZATION - Covenants not to compete by former shareholders acquired in 1996 are being amortized using the straight line method over a period of fifteen years. Amortization expense for May 29, 1998 was $9,163. CONCENTRATION OF CREDIT RISK - In the normal course of business, the Company extends unsecured credit to customers. The Company has cash in excess of $100,000 on deposit in individual banks. The Federal Deposit Insurance Corporation (FDIC) insures only the first $100,000 of funds at member banks. 1 - INVENTORIES The components of inventories as of May 29, 1998 consisted of the following: Raw materials $1,610,361 Finished goods 793,980 Packaging supplies 230,661 ---------- $2,635,002 ==========
2 - MOLD DEPOSITS The Company, for the convenience of its customers, contracted with outside diemakers for the fabrication of molds required to produce specific customer orders. Deposits represented amounts paid to diemakers which had not been billed to customers. Generally, one-half of mold price is billed at the time mold production commences and the balance upon production of the first piece of product. The molds are the property of the customers. Mold deposits at May 29, 1998 totaled $222,769. 3 - INCOME TAXES Income tax expense for the period ended May 29, 1998 is comprised of the following: Current Federal $360,608 State 58,054 -------- Total Current 418,662 Deferred 9,009 -------- Total Provision $427,671 ========
As of May 29, 1998, a deferred tax asset of $64,994 had been recognized for the taxable temporary difference related to deferred employee compensation. For financial statement purposes, deferred employee compensation was deducted as the services were performed. For tax purposes, these costs were not deductible until paid (see Note 7). -7- 11 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS For the Period January 1, 1998 to May 29, 1998 The deferred tax asset has been classified in the balance sheet as follows: Current $23,230 Long term 41,764 ------- Total deferred income tax benefit $64,994 =======
The Company has not recorded a valuation allowance for the deferred tax asset as they feel that it is more likely then not that it will be ultimately realized. 4 - NOTE RECEIVABLE, STOCKHOLDERS The Company had made cumulative advances totaling $346,316 in May 29, 1998 to its stockholders. These notes bear interest equal to the federal short term applicable rate adjusted monthly (6.3%). These notes were repaid upon the sale of the shareholders ownership interest after the close of business on May 29, 1998 (see Note 12). 5 - NOTES PAYABLE, BANK On May 29, 1998, the Company had available a $2,500,000 line of credit with Bankers Trust Company. The line of credit bears interest at the bank's prime rate adjusted daily (8.50%). Interest only is paid monthly until maturity of the note on May 1, 1999 when any unpaid principal balance plus accrued interest is due. This loan is secured by all assets of the Company. The Company utilized a managed disbursement account in conjunction with both of the above operating lines of credit. Under the agreement, idle cash in the operating checking account is applied daily against the operating line of credit balance. If the checking account balance drops below zero, cash is advanced from the operating credit line to eliminate any deficiency. Interest is credited to the Company when the operating checking account balance exceeds outstanding advances against the credit line. At May 29, 1998 the outstanding balances under the operating line of credit consisted of the following: Direct loans $ 666,926 Outstanding checks awaiting clearing 883,395 ---------- Total balance due on credit line $1,550,321 ==========
This line of credit was paid and terminated after the close of business on May 29, 1998 (see Note 12). 6 - LONG TERM DEBT Long term debt consisted of the following: Mortgage loan payable to Bankers Trust Company due in monthly installments of $13,333 plus interest at the bank's prime rate adjusted daily (8.50%); this loan is secured by equipment and real estate $1,266,675
-8- 12 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS For the Period January 1, 1998 to May 29, 1998 Equipment loan payable to Bankers Trust Company due in monthly installments of $2,983 including interest at 8.47%; this loan is secured by a press 172,992 Equipment loan payable to Bankers Trust Company due in monthly installment of $10,071 including interest at 7.94%; this loan is also secured by a press 808,881 ---------- 2,248,548 Less current maturities 240,668 ---------- Total long term debt $2,007,880 ==========
Payments required on long term debt in future years are as follows: 1999 $240,668 2000 247,438 2001 254,776 2002 262,730 2003 271,352 Thereafter 971,584
These notes were paid after the close of business on May 29, 1998 (see Note 12). 7 - DEFERRED COMPENSATION PAYABLE The Company has a deferred compensation obligation that originated from an employment contract with the former chief executive officer who retired in 1991. The compensation agreement provided for a ten year annuity based on years of service with the Company from the effective date of the agreement (January 1, 1976) to his retirement on January 1, 1991. Liability for the ten year annuity, which is being paid in monthly installments of $6,250, had been accrued at its present value using a discount rate of 9.75% and totaled $170,069. The current and long term portion of the deferred compensation payable are reported in the balance sheet. 8 - COMMITMENTS The Company, pursuant to a buy-sell agreement with its shareholders, had agreed to repurchase, at a price to be determined by a formula, all or a part of the shares of a shareholder who becomes deceased. Payment was to be 10% down with the balance payable over ten years. In addition, the Company has options to purchase shares of any stockholder desiring to dispose of shares during their lifetime. After the close of business on May 29, 1998, these agreements were terminated (see Note 12). 9 - MAJOR CUSTOMERS Sales to two publicly traded, international customers consisted of approximately 67% of total sales for 1998. Sales to the one major customer, a manufacturer of agricultural related machinery and equipment, totaled 48% for 1998. The second customer, a manufacturer of snowmobiles and recreational vehicles, purchased 19% of all sales for 1998. -9- 13 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS For the Period January 1, 1998 to May 29, 1998 Sales to fifteen individual operating entities of the agricultural customer and the three operating entities for the recreational vehicle manufacturer have been aggregated for calculation of these percentages. Total accounts receivable from the agricultural customer and the recreational vehicle manufacturer at May 29, 1998 amounted to $2,173,027. 10 - EMPLOYEE BENEFIT PLANS The Company sponsors a profit sharing and 401(k) salary-reduction plan which covers substantially all employees. Contributions to the profit sharing plan are at the discretion of the Board of Directors. Profit sharing plan contributions of $129,083 was approved for 1998. The Company matches 25% of an employee's voluntary salary-reduction contributions to a maximum 3% of total compensation. The employer matching expense was $30,692 May 29, 1998. Fees paid by the Company for plan administration for May 29, 1998 was $16,478. 11 - CONTINGENCY - PENDING IRS EXAMINATION Late in 1997, the Internal Revenue Service started an examination of the Company's federal income tax returns for the years 1995 and 1996. The examining agent has focused on two issues. First, he is requesting addition information as to the allocation of overhead to the Company's finished goods inventory. Second, the agent is considering the possibility that the costs to obtain International Standards Organization (ISO 9000) certification may be a capital asset subject to depreciation over seventeen years. These costs have been previously expensed when incurred. Management feels the effect of any adjustment proposed by the agent will not have a material affect to the financial statements. 12 - SUBSEQUENT EVENT On April 27, 1998, the stockholders of Mid-Central Plastics, Inc. unanimously entered into an agreement to sell their ownership interest to Morton Industrial Group, Inc. The contract was consummated after the close of business on May 29, 1998. Theses financial statements do not reflect the infusion of cash by the Morton Industrial Group, Inc. and related payoff and termination of the operating line of credit, mortgage and equipment acquisition debts to Bankers Trust Company which was after the closing on May 29, 1998. -10- EX-99.2 3 FIN. STMTS. DEC 31, 1997, 1996, 1995 1 Exhibit 99.2 MID-CENTRAL PLASTICS, INC. FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 2 MID-CENTRAL PLASTICS, INC. Years Ended December 31, 1997 and 1996 CONTENTS
Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Statements of Income 2 Balance Sheets 3 Statements of Retained Earnings 4 Statements of Cash Flows 5 NOTES TO THE FINANCIAL STATEMENTS 6-10
3 Board of Directors and Stockholders Mid-Central Plastics, Inc. INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheets of Mid-Central Plastics, Inc. as of December 31, 1997 and 1996, and the related statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mid-Central Plastics, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Northup, Haines, Kaduce, Schmid, Macklin, P.C. January 29, 1998, except for Note 12, as to which the date is April 27, 1998 West Des Moines, Iowa -1- 4 MID-CENTRAL PLASTICS, INC. STATEMENTS OF INCOME Years Ended December 31, 1997 and 1996
1997 1996 ----------- ----------- SALES Plastic $26,824,239 $19,392,512 Molds 1,533,463 1,797,554 Raw material 109,774 88,871 ----------- ----------- TOTAL SALES 28,467,476 21,278,937 COST OF SALES 23,307,521 17,822,660 ----------- ----------- GROSS PROFIT 5,159,955 3,456,277 ----------- ----------- EXPENSES Selling 648,642 526,117 General and administrative 1,794,198 1,682,445 ----------- ----------- TOTAL EXPENSES 2,442,840 2,208,562 ----------- ----------- OPERATING INCOME 2,717,115 1,247,715 ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (184,191) (184,961) Gain (loss) on sale of assets 1,750 (11,105) Interest income 9,908 16,961 Miscellaneous income 18,926 134,958 ----------- ----------- OTHER EXPENSE, NET (153,607) (44,147) ----------- ----------- INCOME BEFORE INCOME TAXES 2,563,508 1,203,568 PROVISION FOR INCOME TAXES - Note 3 983,074 478,176 ----------- ----------- NET INCOME $ 1,580,434 $ 725,392 =========== =========== EARNINGS PER SHARE - Basic and Diluted $ 63.22 $ 27.06 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and Diluted 24,999 26,805 =========== ===========
See Notes to Financial Statements -2- 5 MID-CENTRAL PLASTICS, INC. BALANCE SHEETS ASSETS
DECEMBER 31 1997 1996 ----------- ---------- CURRENT ASSETS Cash and cash equivalents $ 20,100 $ 12,291 Accounts receivable 2,934,662 2,191,513 Inventories - Note 1 2,920,572 3,116,072 Mold deposits - Note 2 45,099 64,098 Prepaid expenses 76,323 117,215 Deferred income tax benefit - Note 3 22,309 20,241 ----------- ---------- TOTAL CURRENT ASSETS 6,019,065 5,521,430 ----------- ---------- PROPERTY, PLANT AND EQUIPMENT, AT COST - Note 6 Land 30,851 30,851 Parking lot improvements 304,627 304,627 Buildings 2,174,681 1,935,680 Machinery 8,697,330 8,029,426 Office equipment 982,677 734,192 Automobiles and trucks 105,947 120,247 Equipment under construction 556,690 15,000 ----------- ---------- 12,852,803 11,170,023 Less accumulated depreciation 8,938,822 8,493,574 ----------- ---------- PROPERTY, PLANT AND EQUIPMENT, NET 3,913,981 2,676,449 ----------- ---------- OTHER ASSETS Cash surrender value, officer life insurance 54,086 40,721 Employee advances 4,991 5,629 Note receivable, stockholder - Note 4 315,533 285,008 Prepaid expenses 15,508 22,982 Deferred income tax benefit - Note 3 51,697 74,003 Non compete agreement, net of $32,986 and $10,986 accumulated amortization in 1997 and 1996, respectively 296,878 318,869 ----------- ---------- TOTAL OTHER ASSETS 738,693 747,212 ----------- ---------- $10,671,739 $8,945,091 =========== ==========
See Notes to Financial Statements 6 LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31 1997 1996 ----------- ---------- CURRENT LIABILITIES Notes payable, bank - Note 5 $ 738,788 $1,265,499 Accounts payable 1,619,868 947,765 Other accrued expenses 596,985 352,560 Accrued income taxes 67,233 278,812 Current maturities of long term debt - Note 6 181,227 159,396 Current maturities of deferred compensation payable - Note 7 58,709 53,266 ----------- ---------- TOTAL CURRENT LIABILITIES 3,262,810 3,057,298 ----------- ---------- LONG TERM DEBT - Note 6 1,333,701 1,334,290 ----------- ---------- DEFERRED COMPENSATION PAYABLE - Note 7 136,031 194,740 ----------- ---------- COMMITMENTS AND CONTINGENCIES - Note 8 and Note 11 STOCKHOLDERS' EQUITY Common stock, Class A, $10 par value, authorized 200,000 shares, issued 15,000 shares 150,000 150,000 Common stock, Class B, $10 par value, authorized 200,000 shares, issued 15,000 shares 150,000 150,000 Paid-in capital 1,520 1,520 Retained earnings 6,080,149 4,499,715 ----------- ---------- 6,381,669 4,801,235 LESS TREASURY STOCK, AT COST Common stock, Class B, 5,001 shares 442,472 442,472 ----------- ---------- TOTAL STOCKHOLDERS' EQUITY 5,939,197 4,358,763 ----------- ---------- $10,671,739 $8,945,091 =========== ==========
-3- 7 MID-CENTRAL PLASTICS, INC. STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 1997 and 1996
1997 1996 ---------- ---------- BALANCE Beginning of year $4,499,715 $3,774,323 NET INCOME FOR YEAR 1,580,434 725,392 ---------- ---------- BALANCE End of year $6,080,149 $4,499,715 ========== ==========
See Notes to Financial Statements -4- 8 MID-CENTRAL PLASTICS, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1997 and 1996 Increase (Decrease) in Cash
1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,580,434 $ 725,392 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 525,539 592,823 Amortization 29,465 10,995 Deferred income taxes 20,238 18,364 Imputed interest on deferred compensation 21,734 26,673 (Gain) Loss on sale of assets (1,750) 11,105 Increase in cash value of life insurance (13,365) (15,945) Changes in assets and liabilities: Accounts receivable (743,149) 20,057 Inventories 195,500 (1,055,137) Prepaid expenses and mold deposits 59,891 (117,771) Accounts payable and accrued expenses 916,528 322,842 Accrued income taxes (211,579) 262,586 Deferred compensation payable (75,000) (75,000) ----------- ----------- Net Cash Provided by Operating Activities 2,304,486 726,984 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (1,763,071) (653,659) Proceeds from sale of assets 1,750 37,090 Advances to stockholder (30,525) (14,019) (Increase) decrease in employee advances 638 (2,136) Advance payment on auto leases -- (12,594) Acquisition of non compete agreements -- (329,864) ----------- ----------- Net Cash Used in Investing Activities (1,791,208) (975,182) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Additions (reductions) to operating line of credit, net (526,711) 605,736 Payments on long term debt (163,758) (1,664,391) Proceeds from long term debt 185,000 1,600,000 Purchase of treasury stock -- (316,397) ----------- ----------- Net Cash Provided by (Used in) Financing Activities (505,469) 224,948 ----------- ----------- NET CHANGE IN CASH 7,809 (23,250) CASH, BEGINNING OF YEAR 12,291 35,541 ----------- ----------- CASH, END OF YEAR $ 20,100 $ 12,291 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 161,882 $ 158,293 Income taxes 1,174,412 197,226
See Notes to Financial Statements -5- 9 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Mid-Central Plastics, Inc., founded in 1960, is a manufacturer and molder of custom plastic component parts. Most of the Company's business activity is with customers located within Iowa and surrounding states. INVENTORIES - Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Plant overhead is allocated to finished goods inventory in direct proportion to the plant wages included in finished goods. ACCOUNTS RECEIVABLE - The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. PREPAID AUTO LEASE - The Company is amortizing the cost of advance automobile lease payments over the twenty-four month term of the related lease. FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts receivable, accounts payable, notes payable and long-term debt, to approximate the fair value of the respective assets an liabilities. EARNINGS PER SHARE - Earning per share is computed under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, which was adopted retroactively by the Company at December 31, 1994. Amounts reported as earnings per share for the periods ended December 31, 1997 and December 31, 1996, reflect the earnings available to stockholders for the period divided by the weighted average number of common shares outstanding during the period. The Company has no dilutive sercurities as defined under SFAS No. 128, therefore, a single earnings per share amount is presented in the financial statements. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at the lower of depreciated cost or fair market value. Expenditures for property and those which substantially increase useful lives are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in income. Depreciation is provided by both the straight-line and declining balance methods over estimated useful lives ranging from five to ten years on equipment and fifteen to thirty-three years on buildings and improvements. AMORTIZATION - Covenants not to compete by former shareholders acquired in 1996 are being amortized using the straight line method over a period of fifteen years. Amortization expense for December 31, 1997 and 1996 was $21,991 and $10,995, respectively. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from estimates that were used. CONCENTRATION OF CREDIT RISK - In the normal course of business, the Company extends unsecured credit to customers. The Company has cash in excess of $100,000 on deposit in individual banks. The Federal Deposit Insurance Corporation (FDIC) insures only the first $100,000 of funds at member banks. -6- 10 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 1 - INVENTORIES The components of inventories as of December 31, 1997 and 1996 consisted of the following:
1997 1996 ---------- ---------- Raw materials $1,581,551 $1,854,979 Finished goods 1,105,870 1,143,344 Packaging supplies 233,151 117,749 ---------- ---------- $2,920,572 $3,116,072 ========== ==========
2 - MOLD DEPOSITS The Company, for the convenience of its customers, contracted with outside diemakers for the fabrication of molds required to produce specific customer orders. Deposits at year-end represented amounts paid to diemakers which had not been billed to customers. Generally, one-half of mold price is billed at the time mold production commences and the balance upon production of the first piece of product. The molds were the property of the customers. Mold deposits at December 31, 1997 and 1996 totaled $45,099 and $64,098, respectively. 3 - INCOME TAXES Income tax expense for the years ended December 31, 1997 and 1996 is comprised of the following:
1997 1996 -------- -------- Current Federal $844,050 $402,339 State 118,783 57,473 -------- -------- Total Current 962,833 459,812 Deferred 20,241 18,364 -------- -------- Total Provision $983,074 $478,176 ======== ========
A reconciliation of income taxes computed using the federal statutory rate of 34% in 1997 and 1996 to the income tax provision is as follows:
1997 1996 -------- -------- Tax at the federal statutory rate $871,593 $409,213 State income tax, net of federal tax benefit 78,397 36,191 Nondeductible expenses and other 33,084 32,772 -------- -------- $983,074 $478,176 ======== ========
-7- 11 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 As of December 31, 1997, a deferred tax asset of $74,006 ($94,244 at December 31, 1996) had been recognized for the taxable temporary difference related to deferred employee compensation. For financial statement purposes, deferred employee compensation was deducted as the services were performed. For tax purposes, these costs were not deductible until paid (see Note 7). The deferred tax asset has been classified in the balance sheet as follows: Current $22,309 Long term 51,697 ------- Total deferred income tax benefit $74,006 =======
The Company has not recorded a valuation allowance for the deferred tax asset as they feel that it is more likely then not that it will be ultimately realized. 4 - NOTE RECEIVABLE, STOCKHOLDER The Company had made cumulative advances totaling $315,533 in 1997 and $285,008 in 1996 to one of its stockholders. These notes bear interest equal to the federal short term applicable rate adjusted monthly (6.08% at December 31, 1997 and 5.60% at December 31, 1996) and are due upon demand. 5 - NOTES PAYABLE, BANK On December 31, 1997, the Company had available a $2,500,000 line of credit with Bankers Trust Company. The line of credit bears interest at the bank's prime rate adjusted daily (8.50% in 1997 and 8.25% in 1996). Interest only is paid monthly until maturity of the note on May 1, 1999 when any unpaid principal balance plus accrued interest is due. This loan is secured by all assets of the Company. The Company utilized a managed disbursement account in conjunction with both of the above operating lines of credit. Under the agreement, idle cash in the operating checking account is applied daily against the operating line of credit balance. If the checking account balance drops below zero, cash is advanced from the operating credit line to eliminate any deficiency. Interest is credited to the Company when the operating checking account balance exceeds outstanding advances against the credit line. At December 31, 1997 and 1996 the outstanding balances under the operating line of credit consisted of the following:
1997 1996 -------- ---------- Direct loans $356,093 $ 868,839 Outstanding checks awaiting clearing 382,695 396,660 -------- ---------- Total balance due on credit line $738,788 $1,265,499 ======== ==========
-8- 12 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 6 - LONG TERM DEBT Long term debt consisted of the following:
1997 1996 ---------- ---------- Mortgage loan payable to Bankers Trust Company due in monthly installments of $13,333 plus interest at the bank's prime rate adjusted daily (8.50% at December 31, 1997); this loan is secured by equipment and real estate $1,333,340 $1,493,686 Equipment loan payable to Bankers Trust Company due in monthly installments of $2,983 including interest at 8.47%; this loan is secured by a press 181,588 -- ---------- ---------- 1,514,928 1,493,686 Less current maturities 181,227 159,396 ---------- ---------- Total long term debt $1,333,701 $1,334,290 ========== ==========
Payments required on long term debt in future years are as follows: 1998 $181,227 1999 183,097 2000 185,131 2001 187,345 2002 189,754 Thereafter 588,374
7 - DEFERRED COMPENSATION PAYABLE The Company has a deferred compensation obligation that originated from an employment contract with the former chief executive officer who retired in 1991. The compensation agreement provided for a ten year annuity based on years of service with the Company from the effective date of the agreement (January 1, 1976) to his retirement on January 1, 1991. Liability for the ten year annuity, which is being paid in monthly installments of $6,250, had been accrued at its present value using a discount rate of 9.75% and totaled $194,740 and $248,006 at December 31, 1997 and 1996, respectively. The current and long term portion of the deferred compensation payable are reported in the balance sheet. 8 - COMMITMENTS The Company, pursuant to a buy-sell agreement with its shareholders, had agreed to repurchase, at a price to be determined by a formula, all or a part of the shares of a shareholder who becomes deceased. Payment was to be 10% down with the balance payable over ten years. In addition, the Company has options to purchase shares of any stockholder desiring to dispose of shares during their lifetime. -9- 13 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 9 - MAJOR CUSTOMERS Sales to two publicly traded, international customers consisted of approximately 68% of total sales for 1997. Sales to the one major customer, a manufacturer of agricultural related machinery and equipment, totaled 50% for 1997. This percentage was approximately 59% of total sales for 1996. A second customer grew to become a major customer during 1997. This manufacturer of snowmobiles and recreational vehicles, purchased 18% of all sales for 1997. Sales to fifteen individual operating entities of the agricultural customer and the three operating entities for the recreational vehicle manufacturer have been aggregated for calculation of these percentages. Total accounts receivable from the agricultural customer and the recreational vehicle manufacturer at December 31, 1997 amounted to $1,546,004 and $412,304 respectively. 10 - EMPLOYEE BENEFIT PLANS The Company sponsors a profit sharing and 401(k) salary-reduction plan which covers substantially all employees. Contributions to the profit sharing plan are at the discretion of the Board of Directors. Profit sharing plan contributions of $351,486 and $126,415 was approved for 1997 and 1996 respectively. The Company matches 25% of an employee's voluntary salary-reduction contributions to a maximum 3% of total compensation. The employer matching expense was $66,891 for 1997 and $61,131 for 1996. Fees paid by the Company for plan administration for 1997 and 1996 was $29,120 and $24,293, respectively. 11 - CONTINGENCY - PENDING IRS EXAMINATION Late in 1997, the Internal Revenue Service started an examination of the Company's federal income tax returns for the years 1995 and 1996. The examining agent has focused on two issues. First, he is requesting addition information as to the allocation of overhead to the Company's finished goods inventory. Second, the agent is considering the possibility that the costs to obtain International Standards Organization (ISO 9000) certification may be a capital asset subject to depreciation over seventeen years. These costs have been previously expensed when incurred. Management feels the effect of any adjustment proposed by the agent will not have a material affect to the financial statements. 12 - SUBSEQUENT EVENT On March 6, 1998, the Stockholders of the Company received an offer to purchase their ownership interest in the Company. This offer was subject to accomplishment of certain conditions which were being pursued. -10- 14 MID-CENTRAL PLASTICS, INC. FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 15 MID-CENTRAL PLASTICS, INC. Years Ended December 31, 1996 and 1995 CONTENTS
Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Statements of Income 2 Balance Sheets 3 Statements of Retained Earnings 4 Statements of Cash Flows 5 NOTES TO THE FINANCIAL STATEMENTS 6-11
16 Board of Directors and Stockholders Mid-Central Plastics, Inc. INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheets of Mid-Central Plastics, Inc. as of December 31, 1996 and 1995, and the related statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mid-Central Plastics, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Northup, Haines, Kaduce, Schmid, Macklin, P.C. February 8, 1997 West Des Moines, Iowa -1- 17 MID-CENTRAL PLASTICS, INC. STATEMENTS OF INCOME Years Ended December 31, 1996 and 1995
1996 1995 ----------- ----------- SALES Plastic $19,392,512 $17,076,399 Molds 1,797,554 1,602,796 Raw material 88,871 164,316 ----------- ----------- SALES, NET 21,278,937 18,843,511 COST OF SALES 17,822,660 16,383,200 ----------- ----------- GROSS PROFIT 3,456,277 2,460,311 ----------- ----------- EXPENSES Selling 526,117 493,342 General and administrative 1,682,445 1,260,737 ----------- ----------- TOTAL EXPENSES 2,208,562 1,754,079 ----------- ----------- OPERATING INCOME 1,247,715 706,232 ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (184,961) (251,500) Loss on sale of assets (11,105) (15,578) Interest income 16,961 8,430 Miscellaneous income 134,958 4,262 ----------- ----------- OTHER EXPENSE, NET (44,147) (254,386) ----------- ----------- INCOME BEFORE INCOME TAXES 1,203,568 451,846 PROVISION FOR INCOME TAXES - Note 3 478,176 196,778 ----------- ----------- NET INCOME $ 725,392 $ 255,068 =========== =========== EARNINGS PER SHARE - Basic and Diluted $ 27.06 $ 9.00 =========== =========== WEIGHTED AVERAGES NUMBER OF COMMON SHARES OUTSTANDING - Basic and Diluted 26,805 28,333 =========== =============
See Notes to Financial Statements -2- 18 MID-CENTRAL PLASTICS, INC. BALANCE SHEETS ASSETS
DECEMBER 31 1996 1995 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 12,291 $ 35,541 Accounts receivable 2,191,513 2,211,570 Inventories - Note 1 3,116,072 2,060,935 Mold deposits - Note 2 64,098 44,261 Prepaid expenses 117,215 19,281 Deferred income tax benefit - Note 3 20,241 18,364 ---------- ---------- TOTAL CURRENT ASSETS 5,521,430 4,389,952 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, AT COST - Note 6 Land 30,851 30,851 Parking lot improvements 304,627 304,627 Buildings 1,935,680 1,745,779 Machinery 8,029,426 7,794,704 Office equipment 734,192 614,087 Automobiles and trucks 120,247 177,088 Equipment under construction 15,000 ---- ---------- ---------- 11,170,023 10,667,136 Less accumulated depreciation 8,493,574 8,003,328 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, NET 2,676,449 2,663,808 ---------- ---------- OTHER ASSETS Cash surrender value, officer life insurance 40,721 24,776 Employee advances 5,629 3,493 Note receivable, stockholder - Note 4 285,008 270,989 Prepaid expenses 22,982 10,388 Deferred income tax benefit - Note 3 74,003 92,244 Non compete agreement, net of $10,995 accumulated amortization 318,869 ---- ---------- ---------- TOTAL OTHER ASSETS 747,212 403,890 ---------- ---------- $8,945,091 $7,457,650 ========== ==========
See Notes to Financial Statements 19 LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31 1996 1995 ---------- ---------- CURRENT LIABILITIES Notes payable, bank - Note 5 $1,265,499 $ 659,763 Accounts payable 947,765 801,186 Other accrued expenses 352,560 176,297 Accrued income taxes 278,812 16,226 Current maturities of long term debt - Note 6 159,266 119,507 Current maturities of deferred compensation payable - Note 7 53,266 48,327 ---------- ---------- TOTAL CURRENT LIABILITIES 3,057,298 1,821,306 ---------- ---------- LONG TERM DEBT - Note 6 1,334,290 1,438,570 ---------- ---------- DEFERRED COMPENSATION PAYABLE - Note 7 194,740 248,006 ---------- ---------- COMMITMENTS AND CONTINGENCIES - Note 8 STOCKHOLDERS' EQUITY Common stock, Class A, $10 par value, authorized 200,000 shares, issued 15,000 shares 150,000 150,000 Common stock, Class B, $10 par value, authorized 200,000 shares, issued 15,000 shares 150,000 150,000 Paid-in capital 1,520 1,520 Retained earnings 4,499,715 3,774,323 ---------- ---------- 4,801,235 4,075,843 LESS TREASURY STOCK, AT COST Common stock, Class B, 5,001 shares in 1996 and 1,667 shares in 1995 442,472 126,075 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 4,358,763 3,949,768 ---------- ---------- $8,945,091 $7,457,650 ========== ==========
-3- 20 MID-CENTRAL PLASTICS, INC. STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 1996 and 1995
1996 1995 ---------- ---------- BALANCE Beginning of year $3,774,323 $3,519,255 NET INCOME FOR YEAR 725,392 255,068 ---------- ---------- BALANCE End of year $4,499,715 $3,774,323 ========== ==========
See Notes to Financial Statements -4- 21 MID-CENTRAL PLASTICS, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1996 and 1995 Increase (Decrease) in Cash
1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 725,392 $ 255,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 592,823 617,687 Amortization of non compete agreements 10,995 --- Deferred income taxes 18,364 16,661 Imputed interest on deferred compensation 26,673 31,154 Loss on sale of assets 11,105 15,578 Increase in cash value of life insurance (15,945) (12,305) Changes in assets and liabilities: Accounts receivable 20,057 255,837 Inventories (1,055,137) (65,326) Prepaid expenses and mold deposits (117,771) (10,798) Accounts payable and accrued expenses 322,842 (312,168) Accrued income taxes 262,586 10,610 Deferred compensation payable (75,000) (75,000) ----------- ----------- Net Cash Provided by Operating Activities 726,984 727,007 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (653,659) (224,195) Proceeds from sale of assets 37,090 28,000 Advances to stockholder (14,019) (109,741) Employee advance increase (2,136) (1,750) Advance payment on auto leases (12,594) (21,881) Acquisition of non compete agreements (329,864) --- ----------- ----------- Net Cash Used in Investing Activities (975,182) (329,567) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Additions (reductions) to operating line of credit, net 605,736 (1,440,237) Payments on long term debt (1,664,391) (72,453) Proceeds from long term debt 1,600,000 1,000,000 Purchase of treasury stock (316,397) --- ----------- ----------- Net Cash Provided by (Used in) Financing Activities 224,948 (512,690) ----------- ----------- NET CHANGE IN CASH (23,250) (115,250) CASH, BEGINNING OF YEAR 35,541 150,791 ----------- ----------- CASH, END OF YEAR $ 12,291 $ 35,541 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 158,293 $ 220,044 Income taxes 197,226 189,697
See Notes to Financial Statements -5- 22 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1996 and 1995 DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Mid-Central Plastics, Inc., founded in 1960, is a manufacturer and molder of custom plastic component parts. Most of the Company's business activity is with customers located within Iowa and surrounding states. In the normal course of business, the Company extends unsecured credit to its customers. INVENTORIES - Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Plant overhead is allocated to finished goods inventory in direct proportion to the plant wages included in finished goods. ACCOUNTS RECEIVABLE - The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. PREPAID AUTO LEASE - The Company is amortizing the cost of advance automobile lease payments over the twenty-four month term of the related lease. FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts receivable, accounts payable, notes payable and long-term debt, to approximate the fair value of the respective assets an liabilities. EARNINGS PER SHARE - Earning per share is computed under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, which was adopted retroactively by the Company at December 31, 1994. Amounts reported as earnings per share for the periods ended December 31, 1996 and December 31, 1995, reflect the earnings available to stockholders for the period divided by the weighted average number of common shares outstanding during the period. The Company has no dilutive securities as defined under SFAS No. 128, therefore, a single earnings per share amount is presented in the financial statements. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at the lower of depreciated cost or fair market value. Expenditures for property and those which substantially increase useful lives are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in income. Depreciation is provided by both the straight-line and declining balance methods over estimated useful lives ranging from five to ten years on equipment and fifteen to thirty-three years on buildings and improvements. AMORTIZATION - Covenants not to compete by former shareholders acquired in 1996 are being amortized using the straight line method over a period of fifteen years. Amortization expense for December 31, 1996 was $10,995. -6- 23 ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from estimates that were used. RECLASSIFICATION - Certain amounts in the 1995 financial statements have been reclassified to reflect comparability with account classifications adopted for 1996. Such reclassification had no effect on previously reported net income. -7- 24 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1996 and 1995 1 - INVENTORIES The components of inventories as of December 31 consisted of the following:
1996 1995 ---------- ---------- Raw materials $1,854,979 $1,310,434 Finished goods 1,143,344 681,399 Packaging supplies 117,749 69,102 ---------- ---------- $3,116,072 $2,060,935 ========== ==========
2 - MOLD DEPOSITS The Company, for the convenience of its customers, contracted with outside diemakers for the fabrication of molds required to produce specific customer orders. Deposits at year-end represented amounts paid to diemakers which had not been billed to customers. Generally, one-half of mold price is billed at the time mold production commences and the balance upon production of the first piece of product. The molds were the property of the customers. Mold deposits at December 31, 1996 and 1995 totaled $64,098 and $44,261, respectively. 3 - INCOME TAXES Income tax expense for the years ended December 31, 1996 and 1995 is comprised of the following:
1996 1995 Current -------- -------- Federal $402,339 $160,481 State 57,473 19,636 -------- -------- Total Current 459,812 180,117 Deferred 18,364 16,661 -------- -------- Total Provision $478,176 $196,778 ======== ========
A reconciliation of income taxes computed using the federal statutory rate of 34% in 1996 and 1995 to the income tax provision is as follows:
1996 1995 -------- -------- Tax at the federal statutory rate $409,213 $153,627 State income tax, net of federal tax benefit 36,191 11,716 Nondeductible expenses and other 32,772 31,435 -------- -------- $478,176 $196,778 ======== ========
-8- 25 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1996 and 1995 As of December 31, 1996, a deferred tax asset of $94,244 ($112,608 at December 31, 1995) had been recognized for the taxable temporary difference related to deferred employee compensation. For financial statement purposes, deferred employee compensation was deducted as the services were performed. For tax purposes, these costs were not deductible until paid (see Note 7). The deferred tax asset has been classified in the balance sheet as follows: Current $20,241 Long term 74,003 ------- Total deferred income tax benefit $94,244 =======
The Company has not recorded a valuation allowance for the deferred tax asset as they feel that it is more likely then not that it will be ultimately realized. 4 - NOTE RECEIVABLE, STOCKHOLDER The Company had made cumulative advances totaling $285,008 in 1996 and $270,989 in 1995 to two of its stockholders. These notes bear interest equal to the federal short term applicable rate adjusted monthly (5.60% at December 31, 1996 and 5.51% at December 31, 1995) and are due upon demand. 5 - NOTES PAYABLE, BANK On December 31, 1996, the Company had available a $2,000,000 line of credit with Bankers Trust Company. The line of credit bears interest at the bank's prime rate adjusted daily (8.25%). Interest only is paid monthly until maturity of the Note on May 1, 1998 when any unpaid principal balance plus accrued interest is due. This loan is secured by all assets of the Company. At December 31, 1995, the line of credit available from Firstar Bank was $1,700,000. Interest only was payable monthly at the bank's prime rate adjusted daily (8.5%), The note, maturing on June 30, 1996, was also secured by all assets of the Company. The Company utilized a managed disbursement account in conjunction with both the above operating lines of credit. Under the agreement, idle cash in the operating checking account is applied daily against the operating line of credit balance. If the checking account balance drops below zero, cash is advanced from the operating credit line to eliminate any deficiency. Interest is credited to the Company when the operating checking account balance exceeds outstanding advances again the credit line. -9- 26 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1996 and 1995 At December 31, 1996 and 1995 the outstanding balances under the operating line of credit consisted of the following:
1996 1995 ---------- --------- Direct loans $ 868,839 $ 39,000 Outstanding checks awaiting clearing 396,660 620,763 ---------- --------- Total balance due on credit line $1,265,499 $ 659,763 ========== =========
6 - LONG TERM DEBT Long term debt consisted of the following:
1996 1995 ---------- --------- Mortgage loan payable to Bankers Trust Company due in monthly installments of $13,283 plus interest at the bank's prime rate adjusted daily (8.25% at December 31, 1996); this loan is secured by equipment and real estate $1,493,686 $ -- Mortgage loan payable to payable to Firstar Bank due in monthly installments of $7,873 including interest at the bank's prime rate adjusted daily (8.50% at December 31, 1995); this loan was secured by equipment and real estate. -- 590,591 Mortgage loan payable to Firstar Bank due in Monthly installments of $12,740 including interest at the bank's prime rate adjusted daily (8.50% at December 31, 1995); this loan was secured by equipment and real estate. -- 967,486 ---------- --------- 1,493,686 1,558,077 Less current maturities 159,396 119,507 ---------- --------- Total long term debt $1,334,290 $1,438,570 ========== ==========
Payments required on long term debt in future years are as follows: 1997 $159,396 1998 159,396 1999 159,396 2000 159,396 2001 159,396 Thereafter 696,706
-10- 27 MID-CENTRAL PLASTICS, INC. NOTES TO THE FINANCIAL STATEMENTS Years Ended December 31, 1996 and 1995 7 - DEFERRED COMPENSATION PAYABLE The Company has a deferred compensation obligation that originated from an employment contract with the former chief executive officer who retired in 1991. The compensation agreement provided for a ten year annuity based on years of service with the Company from the effective date of the agreement (January 1, 1976) to his retirement on January 1, 1991. Liability for the ten year annuity, which is being paid in monthly installments of $6,250, had been accrued at its present value using a discount rate of 9.75% and totaled $248,006 and $296,333 at December 31, 1996 and 1995, respectively. The current and long term portion of the deferred compensation payable are reported in the balance sheet. 8 - COMMITMENTS The Company, pursuant to a buy-sell agreement with its shareholders, had agreed to repurchase, at a price to be determined by a formula, all or a part of the shares of a shareholder who becomes deceased. Payment was to be 10% down with the balance payable over ten years. In addition, the Company has options to purchase shares of any stockholder desiring to dispose of shares during their lifetime. 9 - MAJOR CUSTOMERS Sales to one publicly traded, international customer consisted of approximately 59% of total sales for 1996. Sales to the fourteen individual operating entities of this major customer have been combined for calculation of this percentage. Total sales to this same customer in 1995 was 61% of total sales. The aggregate accounts receivable balance for this major customer was $1,322,423 and $1,196,003 in 1996 and 1995, respectively. 10 - EMPLOYEE BENEFIT PLANS The Company sponsors a profit sharing and 401(k) salary-reduction plan which covers substantially all employees. Contributions to the profit sharing plan are at the discretion of the Board of Directors. A profit sharing plan contribution of $126,415 was approved for 1996; whereas no contribution was made in 1995. The Company matches 25% of employee, voluntary salary-reduction contributions to a maximum 3% of total compensation. The employer matching expense was $61,131 for 1996 and $45,581 for 1995. Fees paid by the Company for plan administration for 1996 and 1995 was $24,293 and $18,609, respectively. -11- EX-99.3 4 PRO FORMA CONDENSED COMBINED BALANCE SHEET 1 Exhibit 99.3 PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS On May 29, 1998, Morton Industrial Group, Inc. (Morton) acquired all of the outstanding stock of Mid-Central Plastics, Inc. (Mid-Central). The acquisition was accounted for as a purchase, with the purchase price allocated among the assets acquired and the liabilities assumed based on their estimated fair market values. The results of Mid-Central's operations will be included in the consolidated statement of earnings of the Company from the acquisition date. The accompanying unaudited pro forma condensed combined statements of earnings combines the consolidated statement of earnings of Morton for the six months ended June 27, 1998 and the year ended December 31, 1997 and the statement of earnings of Carroll George, Inc. (George) for the six months ended June 27, 1998 and the year ended September 30, 1997 and the statement of earnings of B & W Metal Fabricators, Inc. (B & W) and Mid-Central for the six months ended June 27, 1998 and the year ended December 31, 1997, accounting for the purchases of George, B & W, and Mid-Central as though the purchase had occurred at the beginning of the respective period. A pro forma balance sheet at June 27, 1998 is not required since Morton's balance sheet in Form 10-Q for the quarter ended June 27, 1998 reflected these acquisitions. The pro forma condensed combined statements of earnings may not be indicative of the actual results of the transactions. In particular, the pro forma condensed combined statements of earnings are based on management's current estimate of the allocations of the purchase prices, the actual allocation of which may differ. Further, the pro forma condensed combined statements of earnings reflect only those adjustments that are "factually supportable" as defined in the rules of the Securities and Exchange Commission. Accordingly, they do not reflect certain changes in the operating cost structure of the companies acquired which were made in connection with the transactions. The accompanying unaudited pro forma condensed combined statements of earnings should be read in conjunction with the historical financial statements of Morton, George, B & W, and Mid-Central. 2 PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (CONTINUED)
SIX MONTHS ENDED JUNE 27, 1998 -------------------------------------------------------------------------------------------------- HISTORICAL ----------------------------------------------------------- MID- PRO FORMA MORTON GEORGE B & W CENTRAL ADJUSTMENTS COMBINED ------------ ----------- ----------- ------------ ------------------ ------------- (In Thousands, Except Per Share Amounts) Net sales $ 57,038 $ 14,915 $ 5,320 $ 16,324 $ (325) (5) $ 93,272 Cost of sales 47,643 13,110 3,903 13,818 (325) (5) 78,415 266 (4) ----------- ----------- ----------- ----------- ----------- ----------- Gross profit 9,395 1,805 1,417 2,506 (266) 14,857 ----------- ----------- ----------- ----------- ----------- ----------- Operating expenses: Selling expenses 1,465 772 161 362 -- 2,760 Administrative expenses 5,032 792 621 724 196 (6) 7,365 ----------- ----------- ----------- ----------- ----------- ----------- Total operating expenses 6,497 1,564 782 1,086 196 10,125 ----------- ----------- ----------- ----------- ----------- ----------- Operating income 2,898 241 635 1,420 (462) 4,732 ----------- ----------- ----------- ----------- ----------- ----------- Other income (expense): Interest expense (1,445) (76) (51) (96) (992) (2) (2,660) Miscellaneous 30 3 12 61 -- 106 ----------- ----------- ----------- ----------- ----------- ----------- Total other income (expense) (1,415) (73) (39) (35) (992) (2,554) ----------- ----------- ----------- ----------- ----------- ----------- Earnings before income taxes 1,483 168 596 1,385 (1,454) 2,178 Income tax expense (benefit) 97 (24) 158 551 (570) (3) 212 ----------- ----------- ----------- ----------- ----------- ----------- NET EARNINGS $ 1,386 $ 192 $ 438 $ 834 $ (884) $ 1,966 =========== =========== =========== =========== =========== =========== Earnings per share: Basic $ .35 $ 25.86 $ 7.49 $ 27.80 $ .49 =========== =========== =========== =========== =========== Diluted $ .29 $ 25.86 $ 7.49 $ 27.80 $ .42 =========== =========== =========== =========== =========== Weighted average number of shares: Basic 4,001,944 7,424 58,501 30,000 4,001,944 =========== =========== =========== =========== =========== Diluted 4,706,374 7,424 58,501 30,000 4,706,374 =========== =========== =========== =========== ===========
3 PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------------------------ HISTORICAL ---------------------------------------- MID- PRO FORMA MORTON (1) GEORGE B & W CENTRAL ADJUSTMENTS COMBINED ---------- -------- -------- -------- ------------------ --------- (In Thousands, Except Per Share Amounts) Net sales $94,402 $22,839 $7,699 $28,467 $(16) (5) $153,391 Cost of sales 83,267 19,163 5,725 23,307 (16) (5) 131,828 382 (4) ---------- -------- -------- -------- ------- --------- Gross profit 11,135 3,676 1,974 5,160 (382) 21,563 ---------- -------- -------- -------- ------- --------- Operating expenses: Selling expenses 2,231 1,210 281 649 - 4,371 Administrative expenses 13,746 1,223 1,225 1,794 343 (6) 18,331 ---------- -------- -------- -------- -------- --------- Total operating expenses 15,977 2,433 1,506 2,443 343 22,702 ---------- -------- -------- -------- -------- --------- Operating income (loss) (4,842) 1,243 468 2,717 (725) (1,139) ---------- -------- -------- -------- -------- --------- Other income (expense): Interest expense (3,375) (198) (122) (184) (2,391) (2) (6,270) Miscellaneous 84 - - 30 - 114 ---------- -------- -------- -------- -------- --------- Total other income (expense) (3,291) (198) (122) (154) (2,391) (6,156) ---------- -------- -------- -------- -------- --------- Earnings (loss) before income taxes (8,133) 1,045 346 2,563 (3,116) (7,295) Income tax expense (benefit) (3,224) 375 141 983 (1,499) (3) (3,224) ---------- ------- -------- -------- -------- --------- NET EARNINGS (LOSS) $ (4,909) $670 $205 $1,580 $(1,617) $(4,071) ========== ======== ======== ======== ======== ========= Earnings (loss) per share: Basic $(2.52) $90.25 $3.50 $52.68 $(2.09) ========== ======== ======== ======== ========= Diluted $(2.52) $90.25 $3.50 $52.68 $(2.09) ========== ======== ======== ======== ========= Weighted average number of shares: Basic 1,944,444 7,424 58,501 30,000 1,944,444 ========== ======== ======== ======== ========= Diluted 1,944,444 7,424 58,501 30,000 1,944,444 ========== ======== ======== ======== =========
4 PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (CONTINUED) (1) Amounts for Morton for the twelve month period ended December 31, 1997 were determined by adding results for the six months ended June 30, 1997 and the results for the six months ended December 31, 1997 adjusting the income tax provision to the estimated effective rate. Subsequent to June 30, 1997, Morton changed its fiscal year end from June 30 to December 31. (2) Represents incremental interest expense relating to the additional debt of Morton resulting from the completed acquisition of George, B & W, and Mid-Central, net of the interest savings resulting from refinancing existing George, B & W, and Mid-Central debt at a lower interest rate. (3) Represents adjustment of the income tax provision to the estimated amount. Morton has net operating loss carryforwards which could be utilized to offset the taxable income of George, B & W, and Mid-Central. A deferred tax asset has been recorded as part of the purchase price allocation. (4) Represents incremental depreciation expense resulting from adjustments to asset bases and useful lives relating to the acquisition. (5) Elimination of sales and purchases between Morton and B & W. (6) Represents amortization of goodwill and the noncompete agreements. -----END PRIVACY-ENHANCED MESSAGE-----