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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

OR

FOR THE TRANSITION PERIOD FROM                TO                

COMMISSION FILE NUMBER 0-13198

MORTON INDUSTRIAL GROUP, INC.
(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
(Title of class)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   /x/

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   / /

    As of March 13, 2001, the aggregate market value of the Class A Common Stock held by non-affiliates was approximately $3,240,000 and there were 4,400,850 shares of Class A Common Stock and 200,000 shares of Class B Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held in June, 2001 are incorporated by reference into Part III hereof.

    "Safe Harbor" Statement Under The Private Securities Litigation Reform Act Of 1995: This annual 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 acquisition strategy; 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 annual 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.

PART I

Item 1. Business

General Development of the Business

    On January 20, 1998, Morton Metalcraft Holding Co. and its subsidiaries ("Morton") merged (the "Merger") with MLX Corp. ("MLX"), with MLX being the surviving corporation. As a result of the Merger, Morton ceased to exist as a separate corporate entity and MLX amended its Articles of Incorporation to change the corporate name of MLX to Morton Industrial Group, Inc. (the Company). Morton was engaged in the business of manufacturing fabricated metal components for construction and agricultural original equipment manufacturers.

    Since the date of Merger, we have made four acquisitions in 1998, one acquisition in 1999 and one disposition at the end of 1999.

    We established our Morton Custom Plastics Division in March 1998 through the acquisition of Carroll George Inc., located in Northwood, Iowa, a manufacturer of thermoformed acoustic products for construction and agricultural original equipment manufacturers. We expanded our plastic manufacturing capabilities and capacity with the acquisition of Mid-Central Plastics in May, 1998. Operating out of its facility in West Des Moines, Iowa, Mid-Central Plastics specializes in manufacturing injection molded plastic products for construction and agricultural original equipment manufacturers as well as other industrial customers. We sold the assets of Carroll George Inc. on December 31, 1999.

    In April 1998, we acquired B&W Metal Fabricators, a sheet metal fabricator with a facility in Welcome, North Carolina. Through the acquisition of B&W Metal Fabricators, we expanded our presence in the southeastern United States, allowing us to better serve our existing customers. We also acquired certain assets of SMP Steel Corporation in 1998, including its sheet metal fabrication facility in Honea Path, South Carolina. The acquisition of these assets added metal fabrication capacity for our growing business in the southeastern United States.

    On April 15, 1999, we acquired from Worthington Custom Plastics three manufacturing facilities that produce plastic components for industrial original equipment manufacturers. The Worthington acquisition expanded our plastic product offerings to include washing machine parts, electronics housings and other injection molded and thermoformed plastic products. The Worthington acquisition provided us critical mass in the plastics business and added new original equipment manufacturers to our customer base.

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Narrative Description of Business

BUSINESS

Overview

    We are a contract manufacturer of highly engineered metal and plastic components and subassemblies for industrial, construction and agricultural original equipment manufacturers ("OEM's"). Our metal products include cabs, engine enclosures, panels, platforms, frames and complex weldments used in backhoes, excavators, tractors, lifts and similar industrial equipment. Our plastic products include parts used in off-road recreational vehicles, home appliances, aircraft interiors, electronic equipment enclosures and covers, marine engines and commercial lighting products. Our largest customers include Deere & Co. ("Deere"), Caterpillar Inc. ("Caterpillar"), GE Appliances, B/E Aerospace, Compaq and Polaris Industries. Our twelve manufacturing facilities are located in the midwestern and southeastern United States in close proximity to their customers.

MARKETS

    Customers use our products in industrial, construction and agricultural equipment. As OEM's in these industries have intensified their focus on core competencies, they have increasingly outsourced more of their production parts to reduce costs. To effectively manufacture products for OEMs, suppliers must invest in technologically advanced equipment, develop in-house design capabilities, and coordinate manufacturing and product delivery with their customers.

    Historically, our largest customers, Deere, Caterpillar, GE Appliances, B/E Aerospace, Compaq and Polaris Industries, have been supplied by a large number of local suppliers that would each produce a small number of products. As these OEMs have increased the complexity of their equipment and become more dependent on component and subassembly suppliers, they have reduced the size of their supplier base and have established close relationships with a smaller number of sophisticated suppliers who can provide a range of services, including design engineering, prototyping, sophisticated quality systems, and just-in-time delivery. The high levels of service necessary to serve these customers, coupled with significant tooling investments, have resulted in the sole-sourcing of many products rather than dual or multi-sourcing. Currently, we are the sole-source provider of over 85% of the products that we supply to our customers. As these customers continue to reduce the size of their supplier base and outsource a growing percentage of their product needs, we expect to become the sole-source provider on an increasing number of products.

Industrial Equipment

    We produce a range of components and subassemblies for equipment used in a variety of industrial applications. Our products are used in off-road recreational vehicles, home appliances, computer equipment, aircraft interiors and commercial lighting products. Customers in the industrial equipment area generally serve stable or growth markets, and these customers include GE Appliances, Compaq, B/E Aerospace, Honda, Yamaha, Polaris, Arctic Cat, and Lithonia Lighting. Industrial equipment products account for approximately 55% of our 2000 net sales.

Construction Equipment

    The $22 billion U.S construction equipment industry includes construction, earth moving and forestry equipment, as well as some material handling equipment, lifts, off-highway trucks and a variety of machines for specialized industrial applications. Caterpillar and Deere dominate the U.S. construction equipment industry, and together accounted for approximately 55% of total unit sales in 2000. We supply metal components and subassemblies, such as engine enclosures, panels, platforms, frames and complex weldments as well as plastic components such as interior cab dash surround panels, air ducts and handles.

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Our customers use these products in backhoes, excavators, wheel loaders, skid steer loaders, lifts and similar construction equipment. Our sales per construction equipment vehicle range from $500 to $2,500. Construction equipment products account for approximately 30% of our 2000 net sales.

Agricultural Equipment

    The $15 billion U.S. agricultural equipment industry includes large, relatively expensive products such as tractors, combines and other farming equipment. Deere and Caterpillar accounted for approximately 35% of total agricultural equipment unit sales in 2000. We supply metal components and subassemblies such as steps, fenders, feeder housings, grills, and landing decks as well as plastic components such as fenders, tool boxes, facia and covers used in tractors, combines and other agricultural equipment. Our sales per agricultural equipment vehicle range from $200 to $4,000. Agricultural equipment products account for approximately 15% of our 2000 net sales.

PRODUCTS AND SERVICES

Products

    Our investments in modern equipment and systems have allowed us to produce a broad line of highly engineered components and subassemblies. We strive to meet customers' needs for design engineering, prototyping, product fabrication and just-in-time delivery.

Sheet Metal Fabrication

    Our sheet metal fabrication capabilities include laser cutting, forming, press punching, welding, painting and assembly processes. Our sheet metal fabrication processes operate on information created by CAD/CAM software, utilize optic laser cutting machines to cut parts at high speeds and use robotic welders to complement manual welding operations. Our painting operations are capable of producing the wide variety of paint finishes required by customers.

    Fabricated Sheet Metal Products Include:

•

Sheet Metal Enclosures and Boxes—generator set enclosures, electrical and battery boxes, panels, doors, hoods and covers used in backhoes, excavators and tractors.



•

Special Weldments—lift arms, seat modules, frames, guards, platforms, step assemblies and cabs used in backhoes, excavators, crawlers, tractors and skid steer loaders; components for refuse haulers and recreational vehicles



•

Fabricated Steel Tanks—fuel and hydraulic fluid reservations used in motor graders, trucks, crawlers, wheel loaders and excavators.



•

Feeder Housings—feeder housings and other combine components manufactured for agricultural equipment.



•

Sheet Metal Component Packages—laser cut and formed parts that are used in higher level assemblies at customer locations. These products include brackets, plates and frame components that are used in a wide variety of customer end products.



•

Store Fixtures—backframes, lights and brackets used in store displays.

Injection Molded and Thermoformed Plastic Components

    Our injection molded plastic capabilities include such secondary and assembly processes as ultrasonic and hot plate welding, adhesive and solvent bonding, insert staking, snapfit and fastener assembly. Our capabilities in injection molded processes include a wide range of injection molding machine press sizes and gas assist units. Both manual and robotic painting capability exists at a number of plastics facilities.

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Our thermoformed plastic capabilities include vacuum and pressure thermoforming, robotic router trimming, and adhesive and ultrasonic bonding. In addition, we have extensive capability in plastic machining including specialized equipment to handle plastic gears.

    Plastic Components include:

•

Electronics Enclosures and Components—doors, racks, bezels, card holders, back plan connectors and other products that are required on computer servers, memory storage units, monitors and other electronic equipment.



•

Appliance Parts and Components—agitators, tub covers and balance rings for clothes washers, control panels and silverware baskets for dishwashers and door handles for refrigerators.



•

Off-Road Work and Recreational Vehicle Parts and Subassemblies—fenders, covers, enclosures and functional components such as brackets and hoppers that are used on tractors and farm equipment. This product category also includes body panels, racks, bumpers, roofs, windshield support assemblies and seat bases for golf carts, snowmobiles, personal watercraft and off-road all terrain vehicles.



•

Off-Road Vehicle Interiors—consoles, control panels and subassemblies, such as ventilation, lighting and entertainment systems, that are installed in construction, agricultural and specialty equipment.



•

Other Plastic Components and Subassemblies—plastic enclosures for lighting and reflectors used in commercial buildings and plastic assemblies used in aircraft seating.

SERVICES

    We offer our customers a number of services described below:

Product Design and Development

    This service category includes design, development, analysis and costing for our products. We prefer to and often work with customers in the early stages of designing their products.

Prototype Tooling

    This service category includes prototype, tooling and preproduction steps in the manufacturing process. Our dedicated prototype and tooling departments work with customers throughout development efforts, allowing for a smooth introduction of new products.

Part Decorating and Exterior Finishing

    This service category includes a number of decorating operations such as pad printing, hot stamping, liquid and powder coat painting and decal application.

Just-In-Time Delivery

    This service category includes providing customers the ability to order products in low lot sizes with minimal lead time enabling them to reduce their overall order cycle time. Morton also provides deliveries that are specially sequenced to customers' manufacturing schedules.

Engineering and Design Capabilities

    Engineering capabilities have become increasingly emphasized as suppliers' design services for new projects. Computer aided design capabilities include Pro-Engineering, Anvil 1000/5000, Apollo, Merry Mechanization and CADKEY. We have focused our computer aided design investment on the Pro-Engineering system during the last several years because Pro-Engineering is the preferred system of the majority of our customers. Computer aided design allows us to download completed and approved

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designs directly to production equipment in most plants. The resulting direct interaction between customers' designers and our engineers facilitates joint development of new components and redesigns of old parts.

Systems and Controls

    Consistent with our emphasis on technology, computer systems and controls are an integral part of our operating strategy. We have invested heavily in management information systems and computer aided design capabilities and control functions, particularly during the last several years. We also use computer systems to provide timely performance measurements of shop floor quality and activity, daily actual cost information for each factory, electronic data interchange with major customers, real-time dispatching of work orders, integration of purchasing information with production scheduling, capacity management and inventory information.

Sales and Marketing

    To better serve our customers, we have combined our sales and engineering organizations. The sales and engineering group has primary responsibility for managing relationships with customers and working with them to design new products. Our customers are serviced by account teams led by an account manager and including representatives from our primary functional areas. These areas include engineering, quality assurance and customer service. Account teams work with the customer to design products and produce prototypes, schedule production and monitor quality and customer satisfaction. Our account managers also lead the new business development process, working with customers to obtain details of new outsourcing programs, new products currently being designed and existing products which will be redesigned. We believe that the structure of our sales and marketing organization helps to ensure cooperation in product design and helps us to gain repeat and new business from our customers.

Manufacturing/Production

    We use a range of manufacturing processes to serve the needs of our customers. Using these processes, we can manufacture products ranging from simple metal and plastic parts to more complex metal and plastic subassemblies. Our design and engineering capabilities provide us with a competitive edge in obtaining and maintaining preferred supplier status with our customers.

    Sheet Metal Fabrication.  Our sheet metal fabrication capabilities include laser cutting, forming, press punching, folding, welding, painting and assembly processes. Our sheet metal fabrication processes, operating on information created by Pro Engineering software, use optic laser cutting machines to cut parts at high speeds. We use robotic welders to complement our manual welding operations. Our painting operations are capable of producing the wide variety of paint finishes required by our customers.

    Injection Molded and Thermoforming Plastic Components.  Our injection molded plastic capabilities include ultrasonic and hot plate welding, adhesive and solvent bonding, insert staking, snapfit and fastener assembly. Our injection molded processes use injection molding machine presses and gas assist units. Our thermoformed plastic capabilities include vacuum and pressure thermoforming, robotic trimming, and adhesive and ultrasonic bonding. These processes are performed on thermoform units and automated robotic trim stations.

Raw Materials

    The primary raw materials that we use are sheet steel, compounded injection molding resins, fabrications, thermoplastic sheeting, sheeted foam, assembly parts, paint and vinyl sheeting. Prices of these raw materials fluctuate, although the price of our most significant raw material, steel, has dropped over the past several years. Historically we have been able to negotiate with our customers to have them absorb increases in our raw material costs. In addition, we have generally passed on reductions in our raw material

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costs to our customers. We also participate in the steel purchase programs of certain major customers which lowers our cost for steel. Generally, we purchase our raw materials from multiple suppliers, and we believe that the prices we obtain are competitive.

Competition

    The manufacturing and supplying of highly engineered metal and plastic products to original equipment manufacturers is a fragmented and highly competitive business, with no single supplier having significant market share. We believe suppliers with a strong management team, a range of capabilities, modernized facilities and technologically sophisticated equipment like us are more likely to benefit from original equipment manufacturers' increased outsourcing of production than other participants in the industry lacking such assets. However, competitive pressures or other factors could cause us to lose market share or could result in a significant price erosion with respect to our products.

Regulatory/Environmental Matters

    Our operations are subject to numerous federal, state and local environmental and worker health and safety laws and regulations. We believe that we are in substantial compliance with such laws and regulations.

Financial Information about Industry Segments

    Morton Industrial Group, Inc. has two reportable segments, contract metal fabrication and contract plastic fabrication. The contract metal fabrication segment provides full-service fabrication of parts and sub-assemblies for the construction, agricultural, and industrial equipment industry. The contract plastic fabrication segment provides full-service vacuum formed and injection-molded parts and sub-assemblies for the construction, agricultural, and industrial equipment industry.

    Additional information regarding segments can be found in footnote 17 of the accompanying Notes to Consolidated Financial Statements of the Company.

Backlog

    Our backlog of orders was approximately $150.0 million at December 31, 2000, and $135.0 million at December 31, 1999. We anticipate that we will substantially fill all of the backlog orders as of December 31, 2000 during the current year.

Patents, Trademarks, Licenses, Franchises, and Concessions

    We hold no material patents, trademarks, franchises, or concessions. We are the licensee under a number of software licenses that we use in our design, production, and other business operations. All of these licenses have customary terms and conditions.

Working Capital Items

    Our working capital requirements reflect several business factors. Our working capital requirements are typically greater during the second half of the calendar year because both Deere & Co. and Caterpillar, Inc. suspend operations for two weeks of vacation time during July and/or August. Production operations of both of these customers also slow during the last two weeks of December. During these periods, we must rely more heavily on our credit facilities for liquidity. Our rapid growth over the last two years has also increased our need for working capital to meet the capital expenditures required to increase production capacity.

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Employees

    As of March 1, 2001, we employed 2,407 employees, of which 1,966 were hourly and 441 were salaried. None of these employees was subject to a collective bargaining agreement. We believe our relationship with our employees is good.

Item 2. Properties

    The following table presents summary information regarding our facilities. The properties are owned except where indicated by the word "leased". Lease terms for these facilities expire between 2001 and 2008. Our facilities are generally located in close proximity to our customers.

    In addition to manufacturing operations, our 1021 W. Birchwood Street complex in Morton, Illinois, houses the senior management of the Company.

    While we own much of the equipment used in our operations, we also use customer-owned tooling and equipment as well as equipment under operating leases. We believe our facilities are adequate to satisfy current and reasonably anticipated production requirements.

Item 3. 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) related to our 1999 acquisition of the non-automotive plastics business from Worthington. Worthington claims that it is owed additional amounts under the sales agreement and a related service agreement, and that it is owed dividends on the preferred

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stock that it received. We believe that certain warranties and representations made by Worthington at the time of acquisition have been breached and that amounts claimed by Worthington are not due. We have filed a counterclaim against Worthington related to these matters. Management believes that we will prevail in this litigation and does not anticipate any material impact on our financial condition or results of operations.

    We are also involved in routine litigation. We are not currently a party to any legal proceedings that we believe would have a material adverse effect on our financial condition or results of operations.

Item 4. Submission of Matters to Vote of Security Holders

    Not applicable

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

    During 1999 and through October 19, 2000, our Class A common stock traded on the Nasdaq Small Cap Market under the symbol "MGRP". Effective October 20, 2000, the Company's Class A common stock began trading on the Nasdaq Small Cap Market under the symbol "MGRPC".

    The following table sets forth the quarterly high and low close prices during 2000 and 1999 as reported by the Nasdaq Stock Market.

    As of March 13, 2001 there were 3,573 holders of record and 1,998 beneficial holders of our Class A Common Stock.

    We did not declare or pay any common stock dividends in our fiscal years ended December 31, 2000 and 1999. Our credit agreements preclude the payment of dividends.

    On September 20, 2000, the Company issued warrants to purchase 238,548 shares of its Class A common stock. The warrants are exercisable at any time during the period from September 28, 2000 through September 28, 2001, at an exercise price of $.01 per share.

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Item 6. Selected Financial Data

SELECTED HISTORICAL FINANCIAL DATA

    Set forth below are certain selected historical financial data. This information should be read in conjunction with our financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein. The financial data for, and as of the end of, the fiscal years ended June 30, 1996 and 1997, the six months ended December 31, 1997 and the fiscal years ended December 31, 1998, 1999 and 2000 are derived from our audited financial statements. The financial data for, and as of the end of, the six months ended December 31, 1996 and the year ended December 31, 1997 are derived from our unaudited financial statements.

(1)

Merger related charges includes $4,000 for one-time bonuses paid to members of management and other employees, $1,324 of professional fees and $745 in compensation expense from issuance of stock options, all of which were incurred by Morton in connection with the merger with MLX.

Note: Certain amounts in the 1997, 1998 and 1999 selected historical financial data have been reclassified to conform to the 2000 presentation.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report.

General

    We are a contract manufacturer of highly engineered metal and plastic components and subassemblies for construction, agricultural and industrial original equipment manufacturers. Our largest customers, Caterpillar Inc. and Deere & Co., accounted for approximately 53% of our 2000 net sales.

    We price our fabricated metal and thermoformed plastic products on a cost plus basis and use an industry standard to price our injection molded plastic products. In pricing our products, we consider the volume of the product to be manufactured, required engineering resources and the complexity of the product.

    Our customers typically expect us to offset any manufacturing cost increases with improvements in production flow, efficiency, productivity or engineering redesigns. As a part of their supplier development programs, our primary customers initiate cost improvement efforts on a regular basis. At the conclusion of any such effort, when savings can be documented, we share the savings with our customer.

    We have historically grown net sales and increased profitability through increased penetration of our key customers. We have increased the number of customer equipment models that include our products and have increased the number of our products on each of our customers' equipment models. We have also grown our net sales by expanding into the southeastern United States. In addition, we have increased our product offerings to our customers through acquisitions. These acquisitions allow us to better serve our customers growing outsourcing needs.

Results of Operations

    The following table presents certain historical financial information expressed as a percentage of our net sales.

Year Ended December 31, 2000 versus Year Ended December 31, 1999

    Net sales for the year ended December 31, 2000 were $278.8 million compared to $219.3 million for the year ended December 31, 1999, an increase of $59.5 million or 27.1%. Sales increased over $41.4 million in the contract metal fabrication segment of the business. This increase resulted primarily from existing customers' selection of us to manufacture components for new construction and agricultural products. Sales for the contract plastics fabrication segment of the business increased by $18.1 million for

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2000 compared to 1999, due primarily to a full year of operations for Morton Custom Plastics, acquired in April, 1999; sales decreased, however, on a pro forma basis approximately $9 million for 2000 compared to 1999. This approximately 6% decrease resulted from lower sales of computer-related products.

    Sales to Caterpillar and Deere were approximately 53% and 49% of our net sales for 2000 and 1999, respectively.

    Gross profit for the year ended December 31, 2000 was $36.1 million compared with $24.9 million for the year ended December 31, 1999, an increase of $11.2 million or 45.1%. Gross profit for the contract metal fabrication segment of the business increased $4.9 million, or 33.8%. The overall gross profit percentage for this segment decreased slightly, to 13.2% from 13.7%, primarily as a result of costs incurred related to new projects. Gross profit for the contract plastic fabrication segment increased $6.3 million, or 60.8%, due primarily to a full year of operations for Morton Custom Plastics, acquired in April, 1999. The combined gross profit percentage increased to 13.0% from 11.3%, primarily as a result of cost savings efforts introduced at the facilities acquired in 1999.

    Selling and administrative expenses for the year ended December 31, 2000 amounted to $27.0 million compared with $24.1 million in the prior year, an increase of $2.9 million or 12.2%. This increase relates primarily to costs incurred by the operations acquired in 1999. During 2000, we owned those facilities for a full year, compared to less than 9 months in 1999.

    Other income of $1.3 million resulted primarily from separate sales of land and a product line from our Harrisburg, NC operations.

    Interest expense in the year ended December 31, 2000 amounted to $10.8 million compared to $8.2 million in 1999. This increase resulted primarily from additional interest costs incurred related to the 1999 acquisitions (a full year in 2000 compared to less than 9 months in 1999), an increased interest rate and other costs related to our financing agreements.

    We recognized an income tax benefit of $1.2 million when our deferred tax assets were increased to reflect future anticipated utilization of income tax net operating loss carryforwards. The utilization of the income tax net operating loss carryforwards is based upon the Company's future ability to generate taxable income.

Year Ended December 31, 1999 versus Year Ended December 31, 1998

    Net sales for the year ended December 31, 1999 were $219.3 million compared to $151.2 million for the year ended December 31, 1998, an increase of $68.1 million or 45.0%. The Worthington Custom Plastics acquisitions made during 1999 provided incremental net sales of approximately $73.9 million. Sales decreased by $5.8 million in the operations owned in both 1998 and 1999, primarily from decreased sales of components and subassemblies used in agricultural machinery. This decrease relates to a softening in demand for agricultural products that began in the fourth quarter of 1998 and is continuing.

    Sales to Caterpillar and Deere were approximately 49% and 79% of our net sales for 1999 and 1998, respectively.

    We were selected to manufacture a number of additional components for new construction and industrial products for Caterpillar and Deere in 1999. Sales of these additional components partially offset the loss of agricultural sales.

    Gross profit for the year ended December 31, 1999 was $24.9 million compared with $21.5 million for the year ended December 31, 1998, an increase of $3.4 million or 15.8%. The Worthington Custom Plastics acquisition provided $7.1 million of incremental gross profit. A gross margin decrease of $3.7 million was incurred by the operations owned in both 1998 and 1999, which resulted from the lower sales referenced above and product mix changes.

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    Selling and administrative expenses for the year ended December 31, 1999 amounted to $24.1 million compared with $14.5 million in the prior year, an increase of $9.6 million or 66%. This increase relates primarily to costs incurred by the operations acquired in 1999, a full year of selling and administrative costs related to the 1998 acquisitions, approximately $575,000 of costs written-off in the first quarter, 1999, consisting of costs associated with a suspended high-yield financing, and $400,000 associated with fees related to amendments in the Company's credit facilities.

    We sold the assets of Carroll George Inc. on December 31, 1999 for $7.5 million and incurred a loss of approximately $2.5 million.

    Interest expense in the year ended December 31, 1999 amounted to $8.2 million compared to $4.7 million in 1998. This increase resulted primarily from additional interest costs incurred related to the 1999 acquisitions and a full year of interest related to the 1998 acquisitions.

    We incurred a charge of $1.1 million, net of a state income tax benefit, for the cumulative effect of adopting AICPA Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" which requires costs of start-up activities and organization costs to be expensed as incurred.

    An income tax benefit of $1.2 million was recognized as a previously established state income tax reserve was no longer required.

Financial Position and Liquidity

    Historically, we have funded our business with cash generated from operations and borrowings under revolving credit and term loan facilities. In the years ended December 31, 1998, 1999 and 2000, we generated (used) cash from (in) operating activities of $(.7) million, $2.8 million and $2.9 million respectively. Our capital expenditures for the years ended December 31, 1998, 1999 and 2000, were $10.3 million, $5.0 million and $6.7 million respectively. These capital expenditures were principally for additions to improve or maintain our manufacturing capacity and efficiency.

    In the most significant 2000 cash transactions, we sold land, a product line and a metal machining division, generating cash proceeds of approximately $4.2 million. Sales proceeds were used to reduce debt.

    Our consolidated working capital at December 31, 2000 was $12.9 million compared to $9.8 million at December 31, 1999. This represents an increase in working capital of approximately $3.1 million.

    We have two separate credit facilities. The first facility is with Harris Trust and Savings Bank (Harris), and serves the company's operations other than the operations acquired from Worthington Custom Plastics, Inc. (Worthington). The second facility, with General Electric Capital Corporation (GECC), serves the operations acquired from Worthington during the second quarter, 1999. These facilities are separate and provide financing for the named operations. The two credit facilities are separately secured by the assets of the operations they support.

    On May, 28, 1998, we entered into a credit agreement with Harris, as Agent. The credit agreement, as last amended in December, 2000, provides a credit facility with the following components: (i) a $23 million secured revolving credit facility; (ii) a $25 million secured term loan that matures 5 years from the date of the credit agreement closing; and (iii) a $30 million secured term loan that matures 7 years from the date of the credit agreement closing. Both term loans fully amortize over their respective terms with quarterly payments. The interest rates on the loans vary from 1% to 3.75% above the lender's prime rate. We used the proceeds under the facility to refinance the then existing indebtedness, to finance the 1998 acquisitions, and for general corporate purposes. As described in Note 7 of the accompanying financial statements, warrants were issued on September 20, 2000 in connection with the Harris credit agreement.

    The amount of revolving credit availability is calculated using a borrowing base of qualified accounts receivable and inventory. As of December 31, 2000, we had additional availability of approximately

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$2.4 million under the Harris facility. We are paying this lender a fee of .125% per month based upon the amount of the revolving credit commitment and the balance of the term loans.

    In connection with the Harris financing, we have two fixed interest rate swap agreements with a commercial bank (the "counter party"). The first agreement has a notional principal amount of $8.1 million and a termination date of May 31, 2003. The second agreement has a notional principal amount of $14.4 million and a termination date of June 30, 2003. The notional principal amount declines over the term of both agreements based upon a defined amortization schedule. The counter party has the unilateral right to cancel both agreements as of June 30, 2001. As described in Item 7A below, these agreements are for the purpose of limiting the effects of interest rate increases on half of the Company's floating rate term debt.

    Our sources of funds to meet near term liquidity requirements for the businesses not acquired from Worthington will be the cash flows from operations, the Harris line of credit, and management of working capital to reflect current levels of operations. We believe that these sources will be adequate through the end of the current fiscal year and beyond.

    Our separate financing arrangements for the operations acquired from Worthington are described below.

    On April 15, 1999, we entered into a financing agreement with GECC. The agreement contains a 4¹/2 year secured revolving credit facility with maximum availability of $24 million and a $26 million secured term loan with a 4¹/2 year term. The amount of availability is based upon a borrowing base of qualified accounts receivable and inventory. Both of the facilities bear interest at variable interest rates based on the prime rate, plus variable margins. We also incur a fee based upon a certain percentage of the unused revolving credit facility. The term loan facility amortizes quarterly throughout its term. We must also prepay certain amounts from the sale of assets, the issuance of new equity capital and from "excess cash flow", as defined in the agreement.

    As of December 31, 2000, we had additional availability of $0.4 million, under the GECC credit facility. We believe that the agreement with GECC, as amended in March, 2001, will provide the necessary term and revolving financing, and along with cash flows from operations, will provide the necessary levels of liquidity for the operations acquired from Worthington through the end of the current fiscal year and beyond.

    As part of the financing for the Worthington acquisition, we issued 10,000 shares of redeemable preferred stock, which we must redeem in April, 2004 at $1,000 per share plus any dividends accrued since April 15, 1999. The $10 million face value preferred stock was recorded 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. We believe that certain provisions of the agreement with Worthington preclude the payment of dividends, and no dividends have been accrued in 2000. There are current legal proceedings related to certain Worthington matters as described in Part I, Item 3.

    On November 3, 2000, the Company entered into an agreement with First Union Securities, Inc. ("FUSI"), under which FUSI will act as the Company's exclusive financial advisor with respect to possible debt or equity financings or recapitalizations. Mark Mealy, a director of the Company, is a Managing Director at FUSI.

    We incurred $6.7 million of capital expenditures during 2000, primarily for purchases of manufacturing equipment.

    We estimate that our capital expenditures in 2001 will total approximately $5.5 million of which $2.0 million will be for new production equipment and the remaining $3.5 million will be for normal replacement items.

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Year 2000 Readiness

    We completed our preparation in 1999 for the Year 2000 date change. Our plan addressed all hardware, software and microprocessor embedded technologies. We also surveyed our customers' and suppliers' Year 2000 readiness. We noted no significant disruptions in service and we were able to fully utilize our core business unit systems, including order entry, inventory management, purchasing, payroll, invoicing, accounts payable, accounts receivable and general ledger.

    We expended approximately $235,000 in our Year 2000 readiness effort.

    We will continue to monitor our systems and customer and supplier readiness throughout 2001 to address unanticipated problems (which may include problems associated with non-Year 2000 issues and disruptions to the economy in general) and ensure that all processes continue to function properly.

Seasonality

    Our operating results vary significantly from quarter to quarter due to, among other things, the purchasing schedules of our key customers. Our sales and profits historically have been higher in the first half of the calendar year due to our largest customers' preparation in the first two quarters for increased demand during the warmer months of the year.

Impact of New Accounting Standards

    In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and for Hedging Activities," with the effective date amended by Statement No. 137 to fiscal years beginning after June 15, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, then depending on the nature of the hedge, changes in the fair value will either be offset through earnings, against the change in fair value of hedged assets, liabilities or firm commitments or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a hedge's change in fair value will be immediately recognized in income. The adoption of this statement will not have a material impact on the Company's financial statements.

Item 7A. Quantitative and Qualitative Disclosures 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 expanding our operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flow and to lower overall borrowing costs. To achieve our objectives, we entered into two separate financing agreements with a group of banks and another lender. Both financing arrangements contain term loans and revolving credit facilities. Interest is based on our lead bank's or lender's prime rate plus an applicable variable margin. We have also entered into two interest rate swap agreements, as required by our bank financing arrangement, to limit the effect of increases in the interest rates on half of our floating rate term debt. We do not enter into interest rate transactions for speculative purposes. Under the swap agreements, which expire May 31, 2003 to June 30, 2003, the interest rate component of the interest rate is limited to 5.875% on half of our $35,922 term loans under that certain financing arrangement.

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

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Independent Auditors' Report

The Board of Directors and Stockholders
Morton Industrial Group, Inc.:

    We have audited the accompanying consolidated balance sheets of Morton Industrial Group, Inc. and Subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Morton Industrial Group, Inc. and Subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

KPMG LLP

Indianapolis, Indiana
March 16, 2001

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 1999 and 2000
(Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

17

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 1998, 1999 and 2000
(Dollars in thousands, except per share data)

See accompanying notes to consolidated financial statements.

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)

Years ended December 31, 1998, 1999 and 2000
(Dollars in thousands)

See accompanying notes to consolidated financial statements.

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 1998, 1999 and 2000
(Dollars in thousands)

See accompanying notes to consolidated financial statements.

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 1999 and 2000

(Dollars in thousands, except per share data)

(1)  Description of Business and Summary of Significant Accounting Policies

(a) Description of Business

Morton Industrial Group, Inc. and subsidiaries, formerly Morton Metalcraft Holding Co. and subsidiaries ("MMC"), is a contract manufacturer and supplier of high-quality fabricated sheet metal and plastic components and subassemblies for construction, agricultural, and industrial equipment manufacturers located primarily in the Midwestern and Southeastern United States. Sales for the year ended December 31, 2000, were approximately as follows: construction—30%, agricultural—15%, and industrial—55%. The Company's raw materials are readily available, and the Company is not dependent on a single supplier or only a few suppliers.

(b) Principles of Consolidation

The consolidated financial statements include the financial statements of Morton Industrial Group, Inc. (the Company) and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

(c) Use of Estimates in Preparing Financial Statements

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

(d) Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for all inventories.

(e) Property, Plant, and Equipment

Property, plant, and equipment are stated at cost less accumulated depreciation. Equipment under capital leases is stated at the lower of the net present value of the minimum lease payments at the beginning of the lease term or fair value at the inception of the lease.

Depreciation of plant and equipment is calculated over the estimated useful lives of the respective assets using straight-line and accelerated methods. The equipment held under capital leases is amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset.

(f)  Intangible Assets

Intangible assets are recorded at cost and include goodwill, amortized over periods ranging from 18 to 25 years; covenants not to compete, amortized over their contractual periods which range from 3 to 10 years; debt issuance costs, amortized over the term of the related loans; and preproduction costs (prior to January 1, 1999). Preproduction costs represent costs incurred prior

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to the production of significant new products and include labor and overhead relating to developing production lines. These costs were then amortized over a three-year period.

In April 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities" which requires costs of start-up activities and organization costs to be expensed as incurred. SOP 98-5 was effective for fiscal years beginning after December 15, 1998, with initial application reported as the cumulative effect of a change in accounting principle. Accordingly, adoption of the statement resulted in a cumulative effect charge of $1,074, net of income tax benefits, in the first quarter of 1999. The cumulative effect of the change in accounting principle increased 1999 basic and diluted loss available to common shareholders per share by $.25.

(g) Outstanding Checks in Excess of Bank Balance

The Company utilizes a cash management system which incorporates a zero balance disbursement account funded as checks are presented for payment.

(h) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(i)  Stock Option Plan

The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of Statement of Financial Accounting Standards Number 123, Accounting for Stock-Based Compensation.

(j)  Revenue Recognition

Revenue from sales is recognized when the goods are shipped to the customer.

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(k) Interest Rate Swaps

As required by one of its financing arrangements, the Company enters into interest rate swap agreements to limit the effect of increases in the interest rates on certain floating rate debt. The difference between the floating rate on the Company's debt and the rate on the swap agreements is accrued as interest rates change and is recorded in interest expense. During 1998, the Company entered into two swap agreements, expiring May 31, 2003 to June 30, 2003, with an initial aggregate notional amount of $27,500. The effect of these agreements is to limit the LIBOR interest rate component to 5.87% on half of the Company's $35,922 term loans under the applicable financing arrangement. As a result of these swap agreements interest expense was increased by $145 in 1999 and decreased by $161 in 2000.

(l)  Fair Value of Financial Instruments

The Company believes the recorded value of cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of these financial instruments. The Company believes the recorded value of notes payable and long-term debt approximates fair value because their respective interest rates fluctuate with market rates or approximate current market rates.

The fair value of interest rate swaps are the estimated amounts that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the counterparties. At December 31, 1999 and 2000, the Company estimates it would have received $202 and paid $84 to terminate the agreements, respectively.

(m) Earnings (Loss) Per Share

Earnings (loss) per share is computed under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share. Amounts reported as earnings (loss) per share reflect the earnings available to common stockholders for the year divided by the weighted average number of Class A and Class B common shares outstanding during the year.

(n) Design and Development Costs

The Company capitalizes design and development costs for molds, dies and other tools owned by customers when the Company has the noncancelable right to use the molds, dies and other tools during a long-term supply arrangement. Included in other assets at December 31, 2000 are $530 of such capitalized costs, net of amortization of $79.

(o) Reclassifications

Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation.

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(2)  Mergers and Acquisitions

(a) Merger with MLX Corp.

On January 20, 1998, Morton Metalcraft Holding Co. merged (the "Merger") with MLX Corp. ("MLX") with MLX being the surviving corporation. MLX amended its Articles of Incorporation to change the corporate name of MLX to Morton Industrial Group, Inc.

The Merger, for financial accounting and reporting purposes, was treated as a reverse merger with a shell company in accordance with generally accepted accounting principles. The Merger was accounted for as though the Company acquired MLX because (i) the Chairman and CEO of MMC maintained voting control in the surviving corporation; (ii) the Chairman of the Board of Directors, CEO, and directors of the surviving corporation will consist of individuals appointed by the Chairman and CEO of MMC; (iii) the revenues, net earnings, and market value of MMC exceeded those of MLX; and (iv) the market value of the consideration received by the former shareholders of MMC and former holders of options and warrants for MMC common stock, including MLX common stock, MLX options, and cash exceeded the market value of the securities to be retained by the shareholders of MLX common stock.

The historical financial statements of MMC, after the date of the merger, became the historical financial statements of Morton Industrial Group, Inc. as the result of the reverse merger.

The Merger was accounted for as a capital transaction by the Company. Accordingly, the equity of MLX, including recognized tax benefits, net of the repurchase of shares from certain MMC shareholders, was recorded as follows:

(b) Acquisition of Carroll George, Inc.

On March 30, 1998, the Company acquired all of the outstanding shares of common stock of Carroll George, Inc. a manufacturer of plastic components located in Northwood, Iowa. The Company paid a total purchase price of $8,100, including payment of all of Carroll George, Inc.'s revolving credit and term loan debt. This acquisition was accounted for as a purchase. See note 3.

(c) Acquisition of B & W Metal Fabricators, Inc.

On April 8, 1998, the Company acquired all of the outstanding shares of common stock of B & W Metal Fabricators, Inc., a manufacturer of fabricated sheet metal located in Welcome, North Carolina, for $8,500, including the retirement of B & W indebtedness. The purchase consideration included cash payments of $4,900 and the balance in the form of unsecured subordinated notes. The subordinated notes bear interest at 7.0% per annum, discounted to yield 10.0%, and are payable in 40 equal quarterly installments beginning July 8, 1998. The acquisition was accounted for as a purchase and the entire cost was allocated to net assets acquired.

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(d) Acquisition of Mid-Central Plastics, Inc.

On May 29, 1998, the Company acquired all of the outstanding shares of common stock of Mid-Central Plastics, Inc., a manufacturer of plastic components located in West Des Moines, Iowa. The Company paid a total purchase price of $23,800, including payment of all of Mid-Central Plastics, Inc.'s revolving credit and term loan debt. The acquisition was accounted for as a purchase and the total cost in excess of net assets acquired of $9,500 is being amortized on a straight line basis over 25 years.

(e) Acquisition of SMP Steel Corporation

On June 1, 1998, the Company acquired substantially all of the assets of SMP Steel Corporation, a manufacturer of fabricated sheet metal located in Honea Path, South Carolina. The total purchase price was $2,200. The acquisition was accounted for as a purchase and the entire cost was allocated to the net assets acquired.

(f)  Acquisition of the Assets of Worthington Non-Automotive Plastics Group of Worthington Custom Plastics, Inc.

On April 15, 1999, Morton Custom Plastics, LLC acquired substantially all of the assets of the Non-Automotive Plastics Group of Worthington Custom Plastics, Inc. ("Worthington"), a manufacturer of plastic components for construction and industrial equipment manufacturers with locations in Harrisburg, North Carolina; St. Matthews, South Carolina; and Lebanon, Kentucky. The Company paid $25,000 in cash, subject to a working capital adjustment, issued 10,000 shares of preferred stock, and provided for a contingent payment to Worthington Custom Plastics, Inc. The contingent payment will be 15% of the fair market value of the acquired business as of December 31, 2004. The acquisition was accounted for as a purchase and the entire cost was allocated to the net assets acquired. During 2000, the estimated working capital adjustment was reduced by $2,313 and the cost allocated to property, plant and equipment was reduced accordingly.

Morton Custom Plastics, LLC, is wholly owned by Morton Holdings, LLC. Morton Holdings, LLC is 49% owned by Morton Industrial Group, Inc. and 51% owned by Quilvest Custom Plastics, an affiliate of a significant shareholder of the Company. However, the LLC agreement specifies that Morton Industrial Group, Inc. will receive 100% of the net income or loss as well as the proceeds from any sale of Morton Customs Plastics, LLC. Additionally, Quilvest Custom Plastics has granted Morton Industrial Group, Inc. an irrevocable option to purchase its interest in Morton Holdings, LLC at any time for $1. Accordingly, the results of Morton Holdings, LLC and subsidiaries have been consolidated in the accompanying financial statements.

The results of operations of the above merged and acquired companies are included in the accompanying financial statements since the date of the respective merger or acquisition.

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The following unaudited pro forma summary presents the Company's consolidated results of operations for the years ended December 31, 1998 and 1999, as if the merger and acquisitions had occurred at the beginning of each respective year:

(3)  Sale of Businesses

    On December 31, 1999, the Company sold substantially all of the assets and certain liabilities of Carroll George, Inc. The Company received $7,500 of cash for net assets with a book value at the date of sale of $9,963, resulting in a loss on the sale of subsidiary of $2,463.

During 2000, the Company sold the assets and certain liabilities of a product line and a machining division from the contract plastics fabrication segment. The Company received $2,915 of cash for net assets with a book value at the dates of sale of $2,595, resulting in a gain on the sales of $320.

(4)  Inventories

    A summary of inventories follows:

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 1999 and 2000

(Dollars in thousands, except per share data)

(5)  Property, Plant, and Equipment

    A summary of property, plant, and equipment, including assets held under capital leases as described in note 8 is as follows:

(6)  Intangible Assets

    A summary of intangible assets is as follows:

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(7)  Long-term Debt

    A summary of long-term debt follows:

    In May 1998, the Company entered into a new revolving credit facility with a group of banks. The revolving credit agreement, as amended, permits the Company to borrow up to a maximum of $23,000. The agreement requires payment of a quarterly commitment fee of .25% of the average daily unused portion of the revolving credit facility. Interest is due monthly and is based on the Bank's prime rate plus an applicable margin (9.5% and 10.5% at December 31, 1999 and 2000, respectively). The amount available under the revolving credit facility is limited to 85% of qualified accounts receivable, 50% of eligible inventory, plus $2,000 of other assets. The revolving credit agreement expires May 31, 2003.

    To finance the acquisition of certain assets of Worthington Custom Plastics, Inc., the Company entered into a revolving credit facility which allows for borrowings up to a maximum of $24,000. Interest is

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due monthly and is based on the prime rate as published in the Wall Street Journal plus an applicable margin (9.0% at December 31, 1999 and 10.5% at December 31, 2000). The Company also incurs a fee based upon the unused revolving credit facility. The amount available under the revolving credit facility is generally limited to 85% of qualified accounts receivable and 60% of eligible inventory. The revolving credit agreement expires October 15, 2003.

    At December 31, 1999 and 2000, the Company had $21,559 and $31,535, respectively, outstanding and $8,193 and $2,852, respectively, available under its revolving credit facilities.

    In May 1998, the Company entered into a financing arrangement with a group of banks which originally provided for term loans of up to $55,000. The term loans under this financing arrangement are amortized quarterly with the balances due May 31, 2003 and June 30, 2005. Interest is payable monthly at rates based upon the lender's prime rate plus an applicable margin. The agreement is secured by a first lien on all of the Company's accounts receivable, inventory, equipment and various other assets. Effective January 30, 2000, the Company is paying this lender a fee of .125% per month based upon the amount of the revolving credit commitment and the balance of the term loans.

    This debt agreement contains restrictions on capital expenditures, incurring additional debt or liens, making investments, mergers and acquisitions, selling assets or making payments such as dividends or stock repurchases. The revolving credit agreements also contain various financial covenants.

    In connection with the acquisition of certain assets of Worthington Custom Plastics, Inc. in April 1999, the Company obtained a term loan facility which allows for maximum borrowings of $26,000 and expires on October 15, 2003. Interest is due monthly and is based on the prime rate as published by the Wall Street Journal plus an applicable margin which will vary depending on certain financial ratios achieved by the Company. The term loan facility amortizes quarterly throughout its term. The Company must also prepay certain amounts from the sale of assets, the issuance of new equity capital and from excess cash flow as defined by the agreement.

    Under the most restrictive covenant in any agreement, no amount was available for payment of dividends at December 31, 1999 and 2000.

    The aggregate amounts of long-term debt maturities and principal payments for each of the five years subsequent to December 31, 2000 and thereafter are as follows:

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    On September 20, 2000, the Company issued warrants to a lender, in connection with an amendment to the credit agreement, to purchase 238,548 shares of its Class A common stock. The 238,548 warrants issued are exercisable at any time during the period from September 28, 2000 through September 28, 2001, at an exercise price of $.01 per share. The warrants were valued at $863 and were recorded as a discount on the related term loans.

    In connection with replacement of its debt arrangements, the Company wrote off debt issuance costs of $676 during the year ended December 31, 1998. This early termination of the Company's debt agreements resulted in extraordinary charges of $419, after income tax benefit, for the year ended December 31, 1998. The extraordinary charges were equal to ($.11) per share for basic earnings per share and ($.09) per share for diluted earnings per share for the year ended December 31, 1998.

(8)  Leases

    The Company has operating leases for several of its plants, certain warehouse space, and manufacturing and computer equipment. Rental expense for operating leases was $4,254, $6,733 and $7,266 for the years ended December 31, 1998, 1999 and 2000, respectively.

    Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2000 are:

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(9)  Income Taxes

    Total income tax expense for the periods presented was allocated as follows: