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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM  TO

COMMISSION FILE NUMBER 0-13198

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

Georgia(State or other jurisdiction of
Incorporation or organization)

38-0811650(I.R.S. Employer Identification No.)


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

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

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

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

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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.    ý

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.    ý

As
of March 5, 2002, the aggregate market value of the Class A Common Stock held by non-affiliates was approximately $1,500,000 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, 2002 are incorporated by reference into
Part III hereof.

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"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 West Des Moines, Iowa, this facility 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, agricultural and recreational
vehicle original equipment manufacturers ("OEM's"). Our metal products include cabs, engine enclosures, panels, platforms, frames and complex weldments used in backhoes, excavators, tractors, motor
homes 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
Honda. 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, agricultural and recreational vehicle 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 Honda, 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 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, Caterpillar and Lithonia Lighting. Industrial equipment products account for approximately 40% of our 2001 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 50% of total unit sales in 2001. We supply metal components and subassemblies, such as engine enclosures, cabs, platforms, frames and complex weldments as well as
plastic components such as interior cab dash surround panels, air ducts and handles. Our customers use these products in backhoes, excavators, wheel loaders, skid steer loaders, lifts and

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similar construction equipment. Our sales per construction equipment vehicle range from $500 to $2,500. Construction equipment products account for approximately 33% of our 2001 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 2001. 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 17% of our 2001 net sales.

Recreational Equipment

We serve the rapidly growing recreational equipment market with a variety of plastic and metal components and subassemblies. Honda, Arctic Cat, Yamaha and
Winnebago make up a growing base for our market that accounted for 10% of our 2001 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:



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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. 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:



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.

Prototyping/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.

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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 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. In 2001, a corporate "new business team" was established to drive customer diversification.

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.

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Raw Materials

The primary raw materials that we use are sheet steel, compounded injection molding resins, fabrications, thermoplastic sheeting, sheeted foam, assembly parts,
paint and vinyl sheeting. Prices of these raw materials fluctuate, although the price of our most significant raw material, steel, has dropped over the past several years. Historically we have been
able to negotiate with our customers to have them absorb increases in our raw material costs. In addition, we have generally passed on reductions in our raw material costs to our customers. We also
participate in the steel purchase programs of certain major customers which lowers our cost for steel. Generally, we purchase our raw materials from multiple suppliers, and we believe that the prices
we obtain are competitive.

Competition

The manufacturing and supplying of highly engineered metal and plastic products to original equipment manufacturers is a fragmented and highly competitive
business, with no single supplier having significant market share. We believe suppliers with a strong management team, a range of capabilities, modernized facilities and technologically sophisticated
equipment like us are more likely to benefit from original equipment manufacturers' increased outsourcing of production than other participants in the 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, recreational, and industrial equipment industry.

Additional
information regarding segments can be found in footnote 19 of the accompanying Notes to Consolidated Financial Statements of the Company.

Backlog

Our backlog of orders was approximately $121.0 million at December 31, 2001, and $150.0 million at December 31, 2000. We anticipate that we
will substantially fill all of the backlog orders as of December 31, 2001 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

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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.

Employees

As of March 1, 2002, we employed 1,783 employees, of which 1,410 were hourly and 373 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 2003 and 2010. Our facilities are generally located in close proximity to our customers.

|Location                                                |  | Approx.
Sq. Ft. |  | Products Manufactured                                                                                                                        
|------------------------------------------------------- |  | --------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|844 (leased) and 1021 West
Birchwood Street,
Morton, IL |  | 310,000         |  | Sheet metal enclosures and boxes, sheet metal component packages and store fixtures                                                          
|400 Detroit Avenue,Morton,
IL (leased)                  |  | 155,000         |  | Special weldments, including seat modules, cabs and fabricated steel tanks                                                                   
|Peoria, IL (leased)                                     |  | 160,000         |  | Special weldments, including feeder housings and tractor frames                                                                              
|Apex, NC (leased)                                       |  | 100,000         |  | Special weldments, sheet metal enclosures and boxes, sheet metal component packages and fabricated steel tanks                               
|Honea Path, SC                                          |  | 30,000          |  | Store fixtures and sheet metal component packages                                                                                            
|Welcome, NC                                             |  | 185,000         |  | Sheet metal enclosures and boxes, special weldments, fabricated steel tanks and sheet metal component packages                               
|West Des Moines, IA                                     |  | 115,000         |  | Off road work and recreational vehicle parts and subassemblies, off road vehicle interiors and appliance parts and components                
|7301 Caldwell Road
Harrisburg, NC                       |  | 110,000         |  | Electronics enclosures and components and other plastic components and subassemblies                                                         
|5685 Hwy 49 South
Harrisburg, NC (leased)               |  | 127,000         |  | Plastic components and subassemblies                                                                                                         
|Concord, NC (leased)                                    |  | 76,000          |  | Plastics components and subassemblies                                                                                                        
|Lebanon, KY                                             |  | 176,000         |  | Appliance parts and components, off road work and recreational vehicle parts and subassemblies and other plastic components and subassemblies
|St. Matthews, SC                                        |  | 135,000         |  | Off road work and recreational vehicle parts and subassemblies and other plastic components and subassemblies                                

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.

From January 1 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". Effective April 11, 2001, the Company's ticker symbol
on the Nasdaq Small Cap Market was restored to MGRP.

The
following table sets forth the quarterly high and low close prices during 2001 and 2000 as reported by the Nasdaq Stock Market.

|     |                          | High |   | Low  
|---- | ------------------------ | ---- | - | -----
|2001 |                          |      |   |      
|     | October 1 to December 31 |      | $ | 1.500
|     | July 1 to September 30   |      | $ | 1.500
|     | April 1 to June 30       |      | $ | 2.000
|     | January 1 to March 31    |      | $ | 1.875
|2000 |                          |      |   |      
|     | October 1 to December 31 |      | $ | 3.438
|     | July 1 to September 30   |      | $ | 4.750
|     | April 1 to June 30       |      | $ | 6.000
|     | January 1 to March 31    |      | $ | 6.375

As
of March 5, 2002 there were 3,387 holders of record and 1,861 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, 2001 and 2000. 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 through
December 31, 2003 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 year ended June 30,
1997, the six months ended December 31, 1997 and the fiscal years ended December 31, 1998, 1999, 2000 and 2001 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.

|                                                                                |              |   |        | Six Months Ended
December 31, |   |        |       |   |         |       |   |         |        |   |        
|------------------------------------------------------------------------------- | ------------ | - | ------ | ----------------------------- | - | ------ | ----- | - | ------- | ----- | - | ------- | ------ | - | -------
|
|
|
|
|Operating data:                                                                 |              |   |        |                               |   |        |       |   |         |       |   |         |        |   |        
|Net sales                                                                       |              | $ | 80,762 |                               | $ | 32,958 |       | $ | 46,598  |       | $ | 94,402  |        | $ | 151,196
|Cost of sales                                                                   |              |   | 70,541 |                               |   | 29,206 |       |   | 41,932  |       |   | 83,267  |        |   | 129,740
|                                                                                | Gross profit |   |        | 10,221                        |   |        | 3,752 |   |         | 4,666 |   |         | 11,135 |   |        
|Selling and administrative expenses                                             |              |   | 7,003  |                               |   | 2,578  |       |   | 4,591   |       |   | 9,016   |        |   | 14,499 
|Merger related charges(1)                                                       |              |   |       |                               |   |       |       |   | 6,069   |       |   | 6,069   |        |   |       
|Restructuring charges                                                           |              |   |       |                               |   |       |       |   |        |       |   |        |        |   |       
|Operating income (loss)                                                         |              |   | 3,218  |                               |   | 1,174  |       |   | (5,994  | )     |   | (3,950  | )      |   | 6,957  
|Gain (loss) on sale of business units and other                                 |              |   |       |                               |   |       |       |   |        |       |   |        |        |   | 320    
|Interest and other expense                                                      |              |   | (3,206 | )                             |   | (1,597 | )     |   | (1,682  | )     |   | (3,291  | )      |   | (4,779 
|Earnings (loss) before income taxes, accounting change and extraordinary charge |              |   | 12     |                               |   | (423   | )     |   | (7,676  | )     |   | (7,241  | )      |   | 2,498  
|Income taxes                                                                    |              |   | (5     | )                             |   | 141    |       |   | 3,031   |       |   | 2,885   |        |   | (415   
|Earnings (loss) before accounting change and extraordinary charge               |              | $ | 7      |                               | $ | (282   | )     | $ | (4,645  | )     | $ | (4,356  | )      | $ | 2,083  
|Earnings (loss) per share before accounting change and extraordinary charge:    |              |   |        |                               |   |        |       |   |         |       |   |         |        |   |        
|                                                                                | Basic        |   |        |                              |   |        | (.15  | ) |         | (2.39 | ) |         | (2.24  | ) |        
|                                                                                | Diluted      |   |        |                              |   |        | (.15  | ) |         | (2.39 | ) |         | (2.24  | ) |        
|Financial position (at end of period):                                          |              |   |        |                               |   |        |       |   |         |       |   |         |        |   |        
|Working capital                                                                 |              | $ | 2,147  |                               | $ | 3,869  |       | $ | (4,575  | )     | $ | (4,575  | )      | $ | 9,258  
|Total assets                                                                    |              |   | 34,362 |                               |   | 29,142 |       |   | 39,388  |       |   | 39,388  |        |   | 99,603 
|Total debt                                                                      |              |   | 27,608 |                               |   | 27,328 |       |   | 32,494  |       |   | 32,494  |        |   | 70,292 
|Stockholders' equity (deficit)                                                  |              | $ | (9,099 | )                             | $ | (9,388 | )     | $ | (13,552 | )     | $ | (13,552 | )      | $ | 6,868  

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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, recreational and industrial
original equipment manufacturers. Our largest customers, Caterpillar Inc. and Deere & Co., accounted for approximately 57% of our 2001 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.

Results of Operations

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

|                                                                               |  | Year Ended December 31, |  
|------------------------------------------------------------------------------ |  | ----------------------- | -
|
|Statements of Operations Data:                                                 |  |                         |  
|Net sales                                                                      |  | 100.0                   | %
|Gross profit                                                                   |  | 11.3                    |  
|Selling and administrative expenses                                            |  | 11.0                    |  
|Restructuring charges                                                          |  |                        |  
|Operating income (loss)                                                        |  | 0.3                     |  
|Gain (loss) on sales of business units and other                               |  | (1.1                    | )
|Interest and other expense                                                     |  | 3.7                     |  
|Earnings (loss) before income taxes and cumulative effect of accounting change |  | (4.5                    | )

Year Ended December 31, 2001 versus Year Ended December 31, 2000

Net sales for the year ended December 31, 2001 were $236.4 million compared to $278.8 million for the year ended December 31, 2000, a
decrease of $42.4 million or 15.2%. Sales decreased approximately $23.7 million in the contract metal fabrication segment of the business. This decrease resulted primarily from a
significant project completed in 2000 that did not repeat in 2001 and other decreases related to the slowdown in the general economy, and also from continuing pricing pressure from major customers.
Sales for the contract plastics fabrication segment of the business decreased by approximately $18.7 million for 2001 compared to 2000 or 14.6%, due primarily to decreased demand by existing
customers.

Based
upon forecasted customer demand, the Company is not currently anticipating revenue growth for 2002.

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Sales
to Caterpillar and Deere were approximately 57% and 53% of our net sales for 2001 and 2000, respectively.

Gross
profit for the year ended December 31, 2001 was $23.8 million compared with $36.1 million for the year ended December 31, 2000, a decrease of
$12.3 million or 34.0%. The Company's gross profit percentage decreased to 10.1% from 13.0%. Gross profit for the contract metal fabrication segment of the business decreased
$4.4 million, or 21.7%. The overall gross profit percentage for this segment decreased to 12.4% from 13.3%, primarily as a result of fixed costs absorbed by reduced sales levels. Gross profit
for the contract plastic fabrication segment decreased $8.1 million, or 50%. The overall gross profit percentage for this segment decreased to 7.4% from 12.6% primarily as a result of fixed
costs absorbed by reduced sales levels.

Selling
and administrative expenses for the year ended December 31, 2001 amounted to $26.1 million, or 11.0% of sales, compared with $27.0 million, or 9.7% of sales,
in the prior year, a decrease of $0.9 million or 3.4%. This decreased expense related primarily to a continuing effort to achieve appropriate employment levels for selling and administration
functions. The increased percentage results from the reduced sales levels.

The
Company recognized a restructuring charge of $1,323 in the fourth quarter, 2001, associated with the restructuring and consolidation of certain of its Illinois plants. The
restructuring included $510 for costs associated with certain leased facilities which will no longer be used, and a $813 impairment charge for the abandonment of certain leasehold improvements.

Interest
expense in the year ended December 31, 2001 amounted to $9.5 million compared to $10.8 million in 2000. This decrease resulted from both lower average
levels of debt and lower interest rates.

We
recognized an income tax expense of $2.1 million related to a decrease in our deferred tax assets. Deferred tax assets were decreased to reflect lower anticipated utilization
of income tax net operating loss carryforwards than estimated at the preceeding year end. The utilization of the income tax net operating loss carryforwards, and the realization of deferred tax
assets, is based upon the Company's future ability to generate the estimated taxable income.

Net
earnings (loss) available to common stockholders increased from $(20) for the year ended December 31, 2000 to $(16,137) for the year ended December 31, 2001. This
increased net earnings (loss) resulted primarily from reduced sales, fixed costs absorbed by those reduced sales and the reduction in the deferred tax assets.

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 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

11

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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.

Net
earnings (loss) available to common stockholders decreased from $(10,872) for the year ended December 31, 1999 to $(20) for the year ended December 31, 2000. This
decreased net earnings (loss) resulted primarily from increased sales and the lack of one-time costs, such as the loss on the sale of a business and the cumulative effect of an accounting
change experienced in the year ended December 31, 1999.

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, 1999, 2000 and 2001, we generated cash from operating activities of $2.8 million, $2.9 million and $12.5 million respectively. A significant portion of the
cash generated during 2001 related to a reduction in accounts receivable and inventory levels. Our capital expenditures for the years ended December 31, 1999, 2000 and 2001, were
$5.0 million, $6.7 million and $4.4 million respectively. These capital expenditures were principally for additions to improve or maintain our manufacturing capacity and
efficiency.

Our
consolidated working capital at December 31, 2001 was a deficit of $0.5 million compared to positive working capital of $12.9 million at December 31,
2000. This represents a decrease in working capital of approximately $13.4 million. The 2001 results of operations created significant pressure on our liquidity. As previously reported in
Form 10-Q for the period ended September 29, 2001, the Company
was seeking additional loans or funding support. Subsequent to December 31, 2001, the Company entered into separate new amended and restated agreements with both of its existing lenders.

In
February, 2002, the Company entered into an amended and restated secured revolving credit facility with Harris Trust and Savings Bank, as Agent (Harris). The revolving credit
agreement permits the Company to borrow up to a maximum of $21,000. The agreement requires payment of a quarterly commitment fee of .50% per annum of the average daily unused portion of the revolving
credit facility. Interest is due monthly and is based on LIBOR plus 4.0% (totalling 6.25% at March 26, 2002). We, alternatively, could select an interest rate of bank prime plus 1.5%. The
amount available under the revolving credit facility is limited to 85% of qualified accounts receivable, 50% of eligible inventory, plus $2,500 of other assets. The revolving credit agreement expires
July 1, 2003. At December 31, 2001, the Company had $18,400 outstanding and $1,110 available under its Harris revolving credit facility.

12

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In
February, 2002, the Company entered into an amended and restated secured term loan arrangement with Harris for a term loan of $32,965. This term loan is amortized monthly with
principal payments ranging from $235 to $500 and the balance of $24,930 due July 1, 2003. Interest is due monthly and is based upon LIBOR plus 4.0% (totalling 6.25% at March 26, 2002).
We, alternatively, could select an interest rate of bank prime plus 1.5%. These Harris debt agreements have maturity dates of July 1, 2003. The Company intends to obtain loans to refinance the
debt from other sources by the end of the term of this arrangement, which may not be available on acceptable terms and conditions. Failure to do so could have a material adverse effect on the
Company's operations.

In
connection with these Harris loans, we have granted the lender a first lien on all of the Company's accounts receivable, inventory, equipment and various other assets, except for the
assets of Morton Custom Plastics, LLC. These Harris debt agreements, which finance the contract metal fabrication segment and one of the contract plastic fabrication segment locations, contain
restrictions on capital expenditures, additional debt or liens, investments, mergers and acquisitions, asset sales and payments such as dividends or stock repurchases. The agreements also impose
various financial covenants.

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 $5.6 million and a termination date of May 31, 2003. The second agreement has a notional principal amount of $14.2 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 waived its 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.

Historically,
we have met our near term liquidity requirements for our businesses financed by Harris with cash flow from operations, the Harris line of credit, and management of our
working capital to
reflect current levels of operations. The national economic slowdown, which our reduced revenues reflect, has increased pressure on these sources of liquidity. The new Harris revolving credit facility
and term loans replaced existing credit facilities and did not provide additional availability. However, the repayment and fee terms were modified, and the short-term principal payments
and fees were reduced. We anticipate that the amended and restated agreements with Harris will assist us in meeting our liquidity requirements through the term of these agreements.

In
March, 2002, to restructure the financing related to the Morton Custom Plastics, LLC operations, the Company entered into an amended and restated revolving credit facility and
a new senior credit facility with its existing lender, General Electric Capital Corp. (GECC).

The
new revolving credit facility allows for borrowings up to a maximum of $10,000. Of the amount available under the revolver, $1,000 is held back as a reserve for discretionary use
approved by the lender. 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 August 30, 2006. At December 31, 2001, the Company had $9,435 and $1,618, outstanding and available, respectively, under its GECC revolving credit facility.

The
new senior credit facility includes three term loans with initial balances of $10 million (Term A), $7 million (Term B) and $5 million (Term C),
respectively.    The maturity date on the new senior credit facility is August 30, 2006.

The
loans are secured by a first priority security interest in all of the Morton Custom Plastics, LLC assets, including, but not limited to, accounts receivable, inventories,
leaseholds, fixed assets, intangible assets and tradenames.

The
interest on the revolving credit facility, Term A and Term B is LIBOR plus 450 basis points, with a LIBOR floor of 3%. The Company, alternatively, could select an Index rate.
Interest is to be paid monthly

13

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on these loans. The interest on Term C is 13% payment-in-kind. Unpaid interest on Term C is due at maturity.

The
principal on Term A and Term B amortizes quarterly in various amounts beginning on September 30, 2002 for Term A and June 30, 2002 for Term B. Final installments for
Term A and Term B are due at maturity, which is August 30, 2006. The principal on the revolving credit facility and Term C are due at maturity, which is August 30, 2006.

In
conjunction with the new credit facility, the Company issued common stock warrants to purchase 70% ("Warrant Ownership Percentage") of the outstanding ownership interests (on a fully
diluted basis) of Morton Custom Plastics LLC. The Warrant Ownership Percentage can be reduced to 35% if the loan is repaid in full before March 25, 2004. If adjusted EBITDA for the year
ending December 31, 2003, as defined in the agreement, is at least $8,000 and the Warrant Ownership Percentage has not already been reduced, the Warrant Ownership Percentage will be reduced to
51%. The warrants will be recorded at fair value as a discount on the related debt.

At
any time on or after the occurrence of (i) the scheduled maturity date, (ii) an event of default, or (iii) the date of indefeasible prepayment in full of the
loans and cancellation of letters of credit and permanent reduction of revolving loan commitment to zero ("Trigger Events"), each holder has the right to require the Company to purchase all or any
part of the warrants ("Put Feature"). The Company also has the right to repurchase all, but not less than all, of the outstanding warrant and equity interests of the holders subsequent to a Trigger
Event ("Call Feature"). The Put Feature and Call Feature each have a purchase price equal to the greater of the applicable floor price and the fair market value as determined in good faith by the
board and subject to approval by the holders. The initial floor price is $500,000.

Under
the terms of any of these credit agreements, no amount would have been available for payment of dividends at December 31, 2000 and 2001.

Historically,
we have met our near term liquidity requirements for our businesses financed by GECC with cash flow from operations, the GECC line of credit, and management of our working
capital to reflect current levels of operations. The national economic slowdown, which the Morton Custom Plastics, LLC's reduced revenues reflect, has increased pressure on these sources of
liquidity. The new GECC revolving credit facility and term loans total $32 million and replaced a similar facility which totaled approximately $28 million, providing additional
availability. Additionally, repayment terms were modified and short-term principal payments were reduced. We anticipate that the amended and restated agreements with GECC will assist the
Company in meeting its near term liquidity requirements.

As
part of the financing for the 1999 Morton Custom Plastics, LLC 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 or 2001. 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 acted as the Company's exclusive financial advisor
with respect to possible debt or equity financings or recapitalizations from November 3, 2000 until March 12, 2002. Mark Mealy, a director of the Company, is Head of the Commercial and
Industrial Corporate Finance and Mergers and Acquisition Group at Wachovia Securities, Inc. (formerly FUSI).

We
incurred $4.4 million of capital expenditures during 2001, primarily for the update and purchases of manufacturing equipment.

14

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We
estimate that our capital expenditures in 2002 will total approximately $4.2 million, of which $1.2 million will be for new production equipment and the remaining
$3.0 million will be for normal replacement items.

Quarterly Financial Information

Selected quarterly financial information for the years ended December 31, 2001 and 2000 is as follows:

|     |                                                      | (In thousands, except per share data) |  
|---- | ---------------------------------------------------- | ------------------------------------- | -
|
|2001 |                                                      |                                       |  
|     | Sales                                                |                                       | $
|     | Gross margin                                         |                                       |  
|     | Operating income (loss)                              |                                       |  
|     | Net earnings (loss) available to common stockholders |                                       |  
|     | Earnings per share of common stock                   |                                       |  
|     |                                                      | Basic                                 |  
|     |                                                      | Diluted                               |  
|2000 |                                                      |                                       |  
|     | Sales                                                |                                       | $
|     | Gross margin                                         |                                       |  
|     | Operating income                                     |                                       |  
|     | Net earnings (loss) available to common stockholders |                                       |  
|     | Earnings per share of common stock                   |                                       |  
|     |                                                      | Basic                                 |  
|     |                                                      | Diluted                               |  

The
fourth quarter, 2001 includes a restructuring charge of $1,323.

Significant Cash Commitments

The Company has significant future cash commitments, primarily scheduled debt payments and scheduled lease payments. The commitments related to debt payments and
lease payments are fully described in Notes 9 and 10 of the accompanying financial statements.

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.

Critical Accounting Policies

In the preparation of the financial statements in accordance with generally accepted accounting principles, management must often make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying disclosures. Some of these estimates and assumptions can be subjective and complex, and consequently, actual results could
differ from those estimates. Such estimates and assumptions affect the Company's most critical accounting policies: the allowance for doubtful accounts, inventory valuation and the recoverability of
deferred tax assets.

15

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In
determining the allowance for doubtful accounts, management specifically analyzes customer credit worthiness, historic bad debts and changes in economic conditions and records
allowances for bad debts as appropriate. Inventories are valued at lower of cost or market. When, in management's judgment, circumstances indicate the cost of certain inventories exceed their
recoverable value, reserves for
inventory obsolescence are recorded. In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment, and the valuation allowance is adjusted
as appropriate.

Impact of New Accounting Standards

In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed
after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with estimable
useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

The
Company is required to adopt the provisions of Statement 141 immediately and will adopt Statement 142 effective January 1, 2002. Furthermore, goodwill and intangible assets
determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before Statement 142 is adopted in full will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized and tested for impairment in accordance with the appropriate pre-Statement 142 accounting requirements prior to the
adoption of Statement 142.

Statement
141 will require upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business
combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after
adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with
the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting
principle in the first interim period.

In
connection with Statement 142's transitional goodwill impairment evaluation, the Statement will require the Company to perform an assessment of whether there is an indication that
goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company
will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the

16

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Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to
its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption.

As
of December 31, 2001, the Company had unamortized goodwill in the amount of $8.3 million which is subject to the transition provisions of Statements 141 and 142. Because
of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle.

In
August 2001, the Financial Accounting Standards Board issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(Statement 144), which supersedes both FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (Statement
121) and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144 retains the
fundamental provisions in Statement 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while
also resolving significant implementation issues associated with Statement 121. For example, Statement 144 provides guidance on how a long-lived asset that is used as part of a group
should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be
disposed of other than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike Statement 121, an impairment assessment under Statement 144 will never result in a write-down of goodwill. Rather,
goodwill is evaluated for impairment under Statement No. 142, Goodwill and Other Intangible Assets.

The
Company is required to adopt Statement 144 effective January 1, 2002. Management does not expect the adoption of Statement 144 for long-lived assets held for use
to have a material impact on the Company's financial statements because the impairment assessment under Statement 144 is largely unchanged from Statement 121. The provisions of the Statement for
assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot determine the
potential effects that adoption of Statement 144 will have 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 $32,965 term loans under that
certain financing arrangement.

17

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                                                                               |  |   
|-------------------------------------------------------------------------------------------------------------- |  | --
|MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES                                                                 |  |   
|Report of KPMG LLP, Independent Auditors                                                                       |  | 19
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                   |  | 20
|Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001                     |  | 21
|Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1999, 2000 and 2001 |  | 22
|Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001                     |  | 23
|Notes to Consolidated Financial Statements                                                                     |  | 24
|Schedule IIValuation and Qualifying Accounts for the years ended December 31, 1999, 2000 and 2001             |  | 47

18

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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, 2000 and 2001, 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, 2001. 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, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, 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.

KPMG LLP

Indianapolis,
Indiana

March 25,
2002

19

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESConsolidated Balance Sheets    December 31, 2000 and 2001  (Dollars in thousands, except share data)

|Assets                                                                                                                                                               |                                                                                                                                      | 2000                                 |                      | 2001    |        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------- | ------- | -------
|Current assets:                                                                                                                                                      |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     | Trade accounts receivable, less allowance for doubtful accounts of
$1,324 in 2000 and $381 in 2001                                   |                                      | $                    | 28,198  |        
|                                                                                                                                                                     | Inventories                                                                                                                          |                                      |                      | 29,429  |        
|                                                                                                                                                                     | Prepaid expenses                                                                                                                     |                                      |                      | 2,474   |        
|                                                                                                                                                                     | Deferred income taxes                                                                                                                |                                      |                      | 1,650   |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      |                                      | Total current assets |         |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|Property, plant, and equipment, net                                                                                                                                  |                                                                                                                                      |                                      | 51,555               |         |        
|Intangible assets, at cost, less accumulated amortization                                                                                                            |                                                                                                                                      |                                      | 11,186               |         |        
|Deferred income taxes                                                                                                                                                |                                                                                                                                      |                                      | 5,398                |         |        
|Other assets                                                                                                                                                         |                                                                                                                                      |                                      | 643                  |         |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      | $                                    | 130,533              |         | $      
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|
|Current liabilities:                                                                                                                                                 |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     | Outstanding checks in excess of bank balance                                                                                         |                                      | $                    | 2,792   |        
|                                                                                                                                                                     | Current installments of long-term debt                                                                                               |                                      |                      | 10,201  |        
|                                                                                                                                                                     | Accounts payable                                                                                                                     |                                      |                      | 30,735  |        
|                                                                                                                                                                     | Accrued expenses                                                                                                                     |                                      |                      | 5,165   |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      | Total current liabilities            |                      |         | 48,893 
|Long-term debt, excluding current installments                                                                                                                       |                                                                                                                                      |                                      | 78,156               |         |        
|Other liabilities                                                                                                                                                    |                                                                                                                                      |                                      | 280                  |         |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      | Total liabilities                    |                      |         | 127,329
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|Redeemable preferred stock. Authorized 10,000 shares; issued and outstanding 10,000 shares in 2000 and 2001 (redemption value $10,567 at
December 31, 2000 and 2001) |                                                                                                                                      |                                      | 6,277                |         |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|Stockholders' equity (deficit):                                                                                                                                      |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     | Class A common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 4,400,850 shares in 2000 and 2001         |                                      |                      | 44      |        
|                                                                                                                                                                     | Class B common stock, convertible, $.01 par value. Authorized 200,000 shares; issued and outstanding 200,000 shares in 2000 and 2001 |                                      |                      | 2       |        
|                                                                                                                                                                     | Additional paid-in capital                                                                                                           |                                      |                      | 20,883  |        
|                                                                                                                                                                     | Retained deficit                                                                                                                     |                                      |                      | (24,002 | )      
|                                                                                                                                                                     | Accumulated other comprehensive loss                                                                                                 |                                      |                      |        |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      | Total stockholders' equity (deficit) |                      |         | (3,073 
|Commitments and contingencies (notes 10 and 20)                                                                                                                      |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        
|                                                                                                                                                                     |                                                                                                                                      | $                                    | 130,533              |         | $      
|                                                                                                                                                                     |                                                                                                                                      |                                      |                      |         |        

See
accompanying notes to consolidated financial statements.

20

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESConsolidated Statements of Operations    Years ended December 31, 1999, 2000 and 2001  (Dollars in thousands,
except per share data)

|                                                                         |                                   | December 31,                                                                   |        
|------------------------------------------------------------------------ | --------------------------------- | ------------------------------------------------------------------------------ | -------
|
|Net sales                                                                |                                   | $                                                                              | 219,323
|Cost of sales                                                            |                                   |                                                                                | 194,434
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Gross profit                                                                   |        
|                                                                         |                                   |                                                                                |        
|Operating expenses:                                                      |                                   |                                                                                |        
|                                                                         | Selling expenses                  |                                                                                |        
|                                                                         | Administrative expenses           |                                                                                |        
|                                                                         | Restructuring charges (Note 4)    |                                                                                |        
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Total operating expenses                                                       |        
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Operating income (loss)                                                        |        
|                                                                         |                                   |                                                                                |        
|Other income (expense):                                                  |                                   |                                                                                |        
|                                                                         | Gain (loss) on sale of businesses |                                                                                |        
|                                                                         | Interest income                   |                                                                                |        
|                                                                         | Interest expense                  |                                                                                |        
|                                                                         | Other                             |                                                                                |        
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Total other income (expense)                                                   |        
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Earnings (loss) before income taxes and cumulative effect of accounting change |        
|Income taxes                                                             |                                   |                                                                                | (1,165 
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Earnings (loss) before cumulative effect of accounting change                  |        
|Cumulative effect of accounting change, net of income tax benefit
of $69 |                                   |                                                                                | (1,074 
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Net earnings (loss)                                                            |        
|Dividends and accretion of discount on preferred shares                  |                                   |                                                                                | (1,129 
|                                                                         |                                   |                                                                                |        
|                                                                         |                                   | Net earnings (loss) available to common stockholders                           |        
|                                                                         |                                   |                                                                                |        
|Earnings (loss) available to common stockholders per sharebasic         |                                   | $                                                                              | (2.55  
|                                                                         |                                   |                                                                                |        
|Earnings (loss) available to common stockholders per sharediluted       |                                   | $                                                                              | (2.55  
|                                                                         |                                   |                                                                                |        

See
accompanying notes to consolidated financial statements.

21

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESConsolidated Statements of Stockholders' Equity (Deficit)    Years ended December 31, 1999, 2000 and 2001  (Dollars
in thousands)

|                           |                                                           |                                                          |         |   |    | Class B
common stock |         |   |   |   |   |   |        |     |  
|-------------------------- | --------------------------------------------------------- | -------------------------------------------------------- | ------- | - | -- | -------------------- | ------- | - | - | - | - | - | ------ | --- | -
|
|
|
|Balance, December 31, 1998 |                                                           | 3,866,944                                                |         | $ | 39 |                      | 200,000 |   | $ | 2 |   | $ | 19,937 |     | $
|                           | Net loss                                                  |                                                          |        |   |    |                     |         |  |   |   |  |   |        |    |  
|                           | Stock options exercised                                   |                                                          | 437,172 |   |    | 4                    |         |  |   |   |  |   |        | 44  |  
|                           | Dividends and accretion of discount on preferred shares   |                                                          |        |   |    |                     |         |  |   |   |  |   |        |    |  
|                           |                                                           |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  
|Balance, December 31, 1999 |                                                           | 4,304,116                                                |         |   | 43 |                      | 200,000 |   |   | 2 |   |   | 19,981 |     |  
|                           | Net earnings                                              |                                                          |        |   |    |                     |         |  |   |   |  |   |        |    |  
|                           | Stock options exercised                                   |                                                          | 96,734  |   |    | 1                    |         |  |   |   |  |   |        | 39  |  
|                           | Issuance of warrants                                      |                                                          |        |   |    |                     |         |  |   |   |  |   |        | 863 |  
|                           | Accretion of discount on preferred shares                 |                                                          |        |   |    |                     |         |  |   |   |  |   |        |    |  
|                           |                                                           |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  
|Balance, December 31, 2000 |                                                           | 4,400,850                                                |         |   | 44 |                      | 200,000 |   |   | 2 |   |   | 20,883 |     |  
|                           | Comprehensive loss:                                       |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  
|                           |                                                           | Net loss                                                 |         |  |    |                      |        |   |  |   |   |  |        |     | 
|                           |                                                           | Other comprehensive loss, loss on derivative instruments |         |   |    |                      |         |   |   |   |   |   |        |     |  
|                           |                                                           |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  
|                           |                                                           | Total comprehensive loss                                 |         |   |    |                      |         |   |   |   |   |   |        |     |  
|                           |                                                           |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  
|                           | Transition adjustment resulting from adoption of SFAS 133 |                                                          |        |   |    |                     |         |  |   |   |  |   |        |    |  
|                           | Accretion of discount on preferred shares                 |                                                          |        |   |    |                     |         |  |   |   |  |   |        |    |  
|                           |                                                           |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  
|Balance, December 31, 2001 |                                                           | 4,400,850                                                |         | $ | 44 |                      | 200,000 |   | $ | 2 |   | $ | 20,883 |     | $
|                           |                                                           |                                                          |         |   |    |                      |         |   |   |   |   |   |        |     |  

See accompanying notes to consolidated financial statements.

22

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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows    Years ended December 31, 1999, 2000 and 2001  (Dollars in thousands)

|                                                   |                                                                                                      | December 31,                                                                                   |                                                  
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------
|
|Cash flows from operating activities:              |                                                                                                      |                                                                                                |                                                  
|                                                   | Net earnings (loss)                                                                                  |                                                                                                | $                                                
|                                                   | Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities: |                                                                                                |                                                  
|                                                   |                                                                                                      | Depreciation and amortization of plant and equipment                                           |                                                  
|                                                   |                                                                                                      | Other amortization                                                                             |                                                  
|                                                   |                                                                                                      | Asset impairment (note 4)                                                                      |                                                  
|                                                   |                                                                                                      | Write-off of intangible assets                                                                 |                                                  
|                                                   |                                                                                                      | Increase (decrease) in allowance for doubtful accounts                                         |                                                  
|                                                   |                                                                                                      | Deferred income taxes                                                                          |                                                  
|                                                   |                                                                                                      | Gain on sale of property and equipment                                                         |                                                  
|                                                   |                                                                                                      | (Gain) loss on sale of businesses                                                              |                                                  
|                                                   |                                                                                                      | Changes in current assets and liabilities, excluding effects of acquisitions and dispositions: |                                                  
|                                                   |                                                                                                      |                                                                                                | Decrease (increase) in accounts receivable       
|                                                   |                                                                                                      |                                                                                                | Decrease (increase) in inventories               
|                                                   |                                                                                                      |                                                                                                | Decrease (increase) in prepaid expenses          
|                                                   |                                                                                                      |                                                                                                | (Increase) in other assets                       
|                                                   |                                                                                                      |                                                                                                | Decrease in refundable income taxes              
|                                                   |                                                                                                      |                                                                                                | Increase (decrease) in accounts payable          
|                                                   |                                                                                                      |                                                                                                | Increase (decrease) in accrued expenses and other
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|Cash flows from investing activities:              |                                                                                                      |                                                                                                |                                                  
|                                                   | Capital expenditures                                                                                 |                                                                                                |                                                  
|                                                   | Proceeds from sale of property and equipment                                                         |                                                                                                |                                                  
|                                                   | Acquisitions, net of cash acquired                                                                   |                                                                                                |                                                  
|                                                   | Proceeds from sale of businesses                                                                     |                                                                                                |                                                  
|                                                   | Decrease in tax escrow                                                                               |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|Cash flows from financing activities:              |                                                                                                      |                                                                                                |                                                  
|                                                   | Net borrowings (repayments) of notes payable                                                         |                                                                                                |                                                  
|                                                   | Increase (decrease) in checks issued in excess of bank balance                                       |                                                                                                |                                                  
|                                                   | Proceeds from issuance of long-term debt                                                             |                                                                                                |                                                  
|                                                   | Principal payments on long-term debt and capital leases                                              |                                                                                                |                                                  
|                                                   | Proceeds from issuance of common stock                                                               |                                                                                                |                                                  
|                                                   | Proceeds from issuance of preferred stock                                                            |                                                                                                |                                                  
|                                                   | Debt issuance cost                                                                                   |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|Net increase (decrease) in cash                    |                                                                                                      |                                                                                                |                                                 
|Cash at beginning of period                        |                                                                                                      |                                                                                                |                                                 
|                                                   |                                                                                                      |                                                                                                |                                                  
|Cash at end of period                              |                                                                                                      | $                                                                                              |                                                 
|                                                   |                                                                                                      |                                                                                                |                                                  
|Supplemental disclosures of cash flow information: |                                                                                                      |                                                                                                |                                                  
|                                                   | Cash paid during the year for:                                                                       |                                                                                                |                                                  
|                                                   |                                                                                                      | Interest                                                                                       |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  
|                                                   |                                                                                                      | Income taxes                                                                                   |                                                  
|                                                   |                                                                                                      |                                                                                                |                                                  

See accompanying notes to consolidated financial statements.

23

---



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements        December 31, 2000 and 2001        (Dollars in thousands, except per share data)

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



24

---



25

---



26

---



27

---



28

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(2)    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 acquired company are included in the accompanying financial statements since the date of the acquisition.

The
following unaudited pro forma summary presents the Company's consolidated results of operations for the year ended December 31, 1999 as if the acquisition had occurred
at the beginning of the year:

December 31,
1999Net sales

$
246,187Net earnings (loss) available to common shareholders

$
(11,679
)Net earnings (loss) available to common shareholders per sharebasic

$
(2.75
)Net earnings (loss) available to common shareholders per sharediluted

$
(2.75
)


(3)    Sale of Businesses

On December 31, 1999, the Company sold substantially all of the assets and certain liabilities of one of its plastics subsidiaries, 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.

29

---

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)    Restructuring Charge

In connection with a restructuring plan adopted in October of 2001, the Company recorded a $1,323 restructuring charge associated with the restructuring and
consolidation of certain of its Illinois plants. The restructuring included $520 for costs associated with certain leased facilities which will no longer
be used and an $803 impairment charge for the abandonment of certain leasehold improvements and impairment of certain assets under the provisions of SFAS 121. The restructuring activities will
be substantially completed by the end of the third quarter 2002. As of December 31, 2001, a restructuring reserve of $520 is included in accrued expenses relating to facility lease payments,
utilities, insurance and taxes expected to be incurred through the lease termination date.

(5)    Inventories

A summary of inventories follows:

December 31,2000

2001Finished goods

$
9,555

$
9,626Work in process


7,121


4,847Raw materials


12,753


8,097$
29,429

$
22,570


(6)    Property, Plant, and Equipment

A summary of property, plant, and equipment, including assets held under capital leases as described in note 10 is as follows:

December 31,Depreciable
Lives
(in years)2000

2001Land and land improvements

15

$
1,837

$
1,852Buildings and leasehold improvements

15 - 39


15,003


15,004Machinery and vehicles

5 - 12


46,642


47,627Tooling

3


8,676


9,927Office equipment

5 - 10


6,160


6,708Construction in progress




1,574


21779,892


81,335Less accumulated depreciation




28,337


34,873Property, plant and equipment, net



$
51,555

$
46,462


30

---

(7)    Intangible Assets

A summary of intangible assets is as follows:

December 31,2000

2001Goodwill

$
11,063

$
11,063Covenants not to compete


2,591


2,591Debt issuance costs


2,629


2,533Other


435


43516,718


16,622Less accumulated amortization


5,532


6,269Net intangible assets

$
11,186

$
10,353


(8)    Derivative Instruments and Hedging Activities

The Company uses variable-rate debt to finance its operations. The debt obligations expose the Company to variability in interest payments due to
changes in interest rates. Management believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective, management enters into interest rate swap
agreements to manage fluctuations in cash flows resulting from interest rate risk. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows.
Under the terms of the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed rate debt.

The
Company adopted Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging
Activities(SFAS 133), as amended by SFAS No. 137 and No. 138 on January 1, 2001. SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. The Company uses derivative financial instruments (interest rate swaps) to mitigate its interest rate risk on a related financial instrument. SFAS 133
requires that changes in the fair value of derivatives that qualify as a cash flow hedge be recognized in other comprehensive income while the ineffective portion of the derivative's change in fair
value be recognized immediately in earnings. SFAS 133 requires that unrealized gains and losses on that portion of derivatives not qualifying for hedge accounting be recognized currently in
earnings. The cumulative effect of change in accounting principle due to the adoption of SFAS 133 as of January 1, 2001 was $84 and was recorded in accumulated other comprehensive income
(loss) as a transition adjustment. The Company recorded a net loss of $671 in other comprehensive income (loss) for its interest rate swap contracts qualifying for hedge accounting for the year ended
December 31, 2001.

31

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(9)    Long-term Debt and Subsequent Events

A summary of long-term debt follows:

December 31,2000

2001Revolving credit facility with the Harris syndicate

$
17,700

$
18,400Note payable to the Harris syndicate, with variable rate interest (10.5% and 5.75% as of December 31, 2000 and 2001, respectively)


12,747


9,301Note payable to the Harris syndicate, with variable rate interest (13.25% and 8.5% as of December 31, 2000 and 2001, respectively)


23,175


23,159Revolving credit facility with GECC


13,835


9,424Note payable to GECC, with variable rate interest (10.5% to 11.5% and 6.25% to 7.0% as of December 31, 2000 and 2001, respectively)


17,747


15,997Subordinated note payable with interest payable at 7.0%, discounted $393 to yield 10.0%, due in quarterly payments with the balance due April 8, 2008


2,624


2,346Note payable, bank, with interest payable at 8.5%, due in monthly payments with the balance due December 1, 2002


185


82Note payable, bank, with interest payable at 7.85%, due in monthly payments with the balance due May 1, 2001


47


Note payable, electric cooperative, non-interest bearing, due in monthly payments with the balance due November 1, 2006


263


219Capital lease obligations


34


21088,357


79,138Less current installments


10,201


5,268$
78,156

$
73,870


The
Company has two significant credit facilities: one facility with General Electric Capital Corporation ("GECC") to finance the operations of Morton Custom Plastics LLC acquired
from Worthington Custom Plastics, Inc. and another facility with a syndicate of banks led by Harris Trust and Savings Bank ("the Harris syndicate") to finance the operations of the Company's
steel fabrication operations and one plastics location.

In
May 1998, the Company entered into a revolving credit facility with the Harris syndicate. The revolving credit agreement, as amended, permitted the Company to borrow up to a
maximum of $23,000. The agreement required payment of a quarterly commitment fee of .25% of the average daily unused

32

---

portion of the revolving credit facility. Interest was due monthly and was based on the Bank's prime rate plus an applicable margin (10.5% and 5.75% at December 31, 2000 and 2001,
respectively). The amount available under the revolving credit facility was limited to 85% of qualified accounts receivable, 50% of eligible inventory, plus $2,000 of other assets. At
December 31, 2000, the Company had $17,700 outstanding and $2,492 available under this revolving credit facility. At December 31, 2001, the Company had $18,400 outstanding and $1,110
available under this revolving credit facility.

In
May 1998, the Company also entered into a financing arrangement with the Harris syndicate which originally provided for term loans of up to $55,000. The term loans under this
financing arrangement were amortized quarterly. Interest was payable monthly at rates based upon the lender's prime rate plus an applicable margin. The agreement was secured by a first lien on all of
the Company's accounts receivable, inventory, equipment and various other assets, other than assets of Morton Custom Plastics LLC. Effective January 30, 2000, the Company was 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.

The
Harris syndicate agreed to defer principal payments totaling $2,400 due in installments of $1,200 each on September 30 and December 31, 2001 and amendment fee payments
of $450 due on December 15, 2001.

This
debt agreement contained 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 credit agreements also contained various financial covenants.

The
GECC revolving credit facility allowed for borrowings up to a maximum of $24,000. Interest was due monthly and was based on the prime rate as published in the Wall Street Journalplus an applicable
margin (10.5% at December 31, 2000 and 6.5% at December 31, 2001). The Company also incurred a fee
based upon the unused revolving credit facility. The amount available under the revolving credit facility was generally limited to 85% of qualified accounts receivable and 60% of eligible inventory.
At December 31, 2000 and 2001, the Company had $13,835 and $9,424, respectively, outstanding and $360 and $1,618, respectively, available under the GECC revolving credit facility.

The
GECC term loan facility allowed for maximum borrowings of $26,000. Interest was due monthly and was based on the prime rate as published in theWall Street
Journalplus an applicable margin which varied depending on certain financial ratios achieved by the Company. The term loan facility amortized quarterly throughout its term.
The Company was also required to prepay certain amounts from the sale of assets, the issuance of new equity capital and from excess cash flow as defined by the agreement.

GECC
agreed to defer principal payments totaling $2,000 due in installments of $1,000 each on September 30 and December 31, 2001.

Subsequent
to December 31, 2001, the Company's credit facilities were revised as described in the following paragraphs:

In
February 2002, the Company entered into a new secured revolving credit facility with the Harris syndicate. The revolving credit agreement permits the Company to borrow up to a
maximum of $21,000. The agreement requires payment of a quarterly commitment fee of .50% per annum of the average daily

33

---

unused portion of the revolving credit facility. Interest is due monthly and is based on LIBOR plus 4.0% (effective rate of 5.883% at December 31, 2001). The Company, alternatively, could
select a domestic interest rate. The amount available under the revolving credit facility is limited to 85% of qualified accounts receivable, 50% of eligible inventory, plus $2,500 of other assets.
The revolving credit agreement expires July 1, 2003.

In
February 2002, the Company entered into a secured term loan arrangement with the Harris syndicate for a term loan of $32,965. The new Harris term loan arrangement replaced
existing term loans and did not provide additional availability. The term loan under this financing arrangement is amortized monthly with principal payments ranging from $235 to $500 and the balance
of $24,930 due July 1, 2003. Interest is due monthly and is based upon LIBOR plus 4.0% (effective rate of 5.883% at December 31, 2001). The Company, alternatively, could select a
domestic interest rate. The agreement is secured by a first lien on all of the Company's accounts receivable, inventory, equipment and various other assets, other than the assets of Morton Custom
Plastics LLC. The Company intends to obtain additional loans or funding support from other sources by the end of the term of this arrangement, which may not be available on acceptable terms and
conditions. Failure to do so could have a material adverse effect on the operations.

These
debt agreements contain restrictions on capital expenditures, incurring additional debt or liens, making investments, mergers and acquisitions, selling assets or making payments
such as dividends or stock repurchases, as well as containing various financial covenants.

In
March 2002, Morton Custom Plastics LLC entered into a new revolving credit facility and a new senior credit facility with GECC.

The
new GECC revolving credit facility allows for borrowings up to a maximum of $10,000. Of the amount available under the revolver, $1,000 is held back as reserve for discretionary use
approved by the lender. 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 August 30, 2006.

The
new GECC senior credit facility includes three term loans with initial balances of $10,000 (Term A), $7,000 (Term B) and $5,000 (Term C), respectively. The
maturity date on the new senior credit facility is August 30, 2006.

The
new GECC revolving credit facility and term loans total $32,000 and replaced a similar facility which totaled $28,000, providing additional availability.

The
GECC loans are secured by a first priority security interest in all of the Morton Custom Plastics LLC assets, including, but not limited to, accounts receivable, inventories,
leaseholds, fixed assets, intangible assets and trade names.

The
interest on the GECC revolving credit facility, Term A and Term B is at LIBOR plus 450 basis points, with a LIBOR floor of 3% (effective rate of 6.383% at
December 31, 2001). The Company, alternatively,
could select an index rate. Interest is to be paid monthly on these loans. The interest on Term C is 13% payment-in-kind. Unpaid interest on Term C is due at
maturity.

34

---

The
principal on Term A and Term B amortizes quarterly in various amounts beginning on September 30, 2002 for Term A and June 30, 2002 for
Term B. Final installments for Term A and Term B are due at maturity, which is August 30, 2006. The principal on the revolving credit facility and Term C are due at
maturity, which is August 30, 2006.

In
conjunction with the new credit facility, the Company issued to GECC common stock warrants to purchase 70% ("Warrant Ownership Percentage") of the outstanding ownership interests (on
a fully diluted basis) of Morton Custom Plastics LLC. The Warrant Ownership Percentage can be reduced to 35% if the loan is repaid in full before March 25, 2004. If adjusted EBITDA for
the year ending December 31, 2003, as defined in the agreement, is at least $8,000 and the Warrant Ownership Percentage has not already been reduced, the Warrant Ownership Percentage will be
reduced to 51%. The warrants will be recorded at fair value as a discount on the related debt.

At
any time on or after the occurrence of (i) the scheduled maturity date, (ii) an event of default, or (iii) the date of indefeasible prepayment in full of the
loans and cancellation of letters of credit and permanent reduction of revolving loan commitment to zero ("Trigger Events"), each holder has the right to require the Company to purchase all or any
part of the warrants ("Put Feature"). The Company also has the right to repurchase all, but not less than all, of the outstanding warrant and equity interests of the holders subsequent to a Trigger
Event ("Call Feature"). The Put Feature and Call Feature each have a purchase price equal to the greater of the applicable floor price and the fair market value as determined in good faith by the
board and subject to approval by the holders. The initial floor price is $500.

Under
the most restrictive covenant in any agreement, no amount was available for payment of dividends at December 31, 2000 and 2001.

The
aggregate amounts of long-term debt maturities and principal payments, based upon the new credit facilities for each of the five years subsequent to December 31,
2001 and thereafter are as follows:

Fiscal year ending:2002

$
5,2682003


48,7832004


3,6602005


4,1142006


16,669Thereafter


644$
79,138


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 through December 31, 2003, 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 the year ended December 31, 2000.

35

---

(10)    Leases

The Company is obligated under various capital leases for certain machinery. At December 31, 2001, the gross amount of equipment and related amortization
recorded under capital leases was as follows:

Machinery

$
228Less accumulated amortization


18$
210


Assets
under capital leases are included in property, plant and equipment and amortization of assets held under capital leases is included with depreciation expense.

The
present value of future minimum capital lease payments at December 31, 2001 was as follows:

Year ending December 31:2002

$
582003


582004


582005


492006


21Total minimum lease payments


244Less amount representing interest (from 7.1% to 7.9%)


34Present value of net minimum capital lease payments

$
210


The
Company also has operating leases for several of its plants, certain warehouse space, and manufacturing and computer equipment. Rental expense for operating leases was $6,733, $7,266
and $7,901 for the years ended December 31, 1999, 2000 and 2001, respectively.

Future
minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2001 are:

Year ending December 31:2002

$
7,7102003


7,2162004


6,4712005


4,9362006


2,521Thereafter


5,451Total minimum lease payments

$
34,305


36

---

(11)    Income Taxes

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

December 31,1999

2000

2001Income tax before cumulative effect of accounting change

$
(1,165
)
$
(1,230
)
$
2,100Cumulative effect of accounting change


(69
)




$
(1,234
)
$
(1,230
)
$
2,100


Income
tax expense (benefit) consists of the following:

Current

Deferred

TotalYear ended December 31, 1999:Federal

$


$


$
State


(1,165
)




(1,165
)$
(1,165
)
$


$
(1,165
)Year ended December 31, 2000:Federal

$


$
(1,072
)
$
(1,072
)State





(158
)

(158
)$


$
(1,230
)
$
(1,230
)Year ended December 31, 2001:Federal

$


$
1,830

$
1,830State





270


270$


$
2,100

$
2,100


37

---



(11)    Income Taxes (Continued)

Total
income tax expense (benefit) attributable to income before extraordinary item and cumulative effect of accounting change differed from the amounts computed by applying the
U.S. Federal corporate income tax rate of 34% for all periods to loss before income taxes as a result of the following:

December 31,1999

2000

2001Computed "expected" tax benefit

$
(3,344
)
$
(120
)
$
(4,410
)State income tax benefit, net of Federal income tax benefit





(104
)

(326
)Amortization of goodwill


152


149


149Officer's life insurance


23


29


20Increase (decrease) in valuation allowance


3,104


(1,085
)

6,747Resolution of tax contingency


(1,165
)




Other, net


65


(99
)

(80
)$
(1,165
)
$
(1,230
)
$
2,100


The
state tax benefit for the year ended December 31, 1999 primarily results from the resolution of a tax contingency related to the Company's 1998 merger with MLX Corp.

38

---

The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 2001, are
presented below:

December 31,2000

2001Deferred tax assets attributable to:Net operating loss and credit carryforwards

$
28,043

$
32,098Accrued vacation pay


314


228Compensation expense from issuance of stock options


291


291Reserves and other


818


879Total gross deferred tax assets


29,466


33,496Less valuation allowance


(17,461
)

(24,208
)Net deferred tax assets


12,005


9,288Deferred tax liabilities attributable to:Plant and equipment, principally due to differences in depreciation


(4,723
)

(4,166
)Recapture of inventory LIFO valuation for tax purposes


(39
)

Excess of tax over book amortization of organization costs


(63
)

(56
)Discount on debt for financial reporting purposes


(132
)

(118
)Total deferred tax liabilities


(4,957
)

(4,340
)Net deferred tax asset

$
7,048

$
4,948


In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset,
the Company will need to generate future taxable income of approximately $12,800 prior to the expiration of the net operating loss carryforwards in 2021. Management believes it is more likely than not
the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2001 based upon anticipated profitability over the period of
years that the temporary differences are expected to become tax deductions. Management believes that sufficient book and taxable income will be generated to realize the benefit of these tax assets.
The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

During
2001, net operating loss carryforwards of approximately $45 expired unused. At December 31, 2001, the Company has net operating loss carryforwards for Federal income tax
purposes of approximately $82,100 which are available to offset future federal taxable income, if any, through 2021.

39

---

(12)    Redeemable Preferred Stock

Pursuant to the agreement to purchase certain assets of Worthington Custom Plastics, Inc., the Company issued 10,000 shares of preferred stock, without par
value, of Morton Industrial Group, Inc. to Worthington. The preferred stock is mandatorily redeemable five years from its issuance date at $1,000 per share, and will pay or accrue annual
dividends at a rate of 8%. The Company may pay such dividends in cash or in additional shares of preferred stock. The agreement provides that the dividend rate may be reduced based upon changes in
pricing of certain customer contracts. The Company has determined that those dividends should be reduced as provided in the agreement, and accordingly, has accrued no dividends for the years ending
December 31, 2000 and 2001. The preferred stock was valued at $4,250 at the time of the acquisition and the discount is being accreted over a five-year period using the effective
yield method.

(13)    Stockholders' Equity

The Company's capital stock consists of Class A and Class B common stock. The Class A and Class B shares have the same rights and
preferences, except that the Class B shares guarantee the holders certain special voting rights. The holders of the Class B common stock are ensured that the total votes available to be
cast by the holders, when combined with Class A common stock held, will be at least 24% of the votes available to be cast by all holders of common stock.

The
Board of Directors is also authorized to issue one or more series of preferred stock, with the number of shares, dividend rate, voting rights, redemption features and other rights to
be determined by the Board of Directors.

(14)    Stock Option Plans

In 1998, the Company adopted a stock option plan (the "Plan") pursuant to which the Company's Board of Directors may grant stock options to officers and key
employees. The Plan authorizes grants of options to purchase up to 1,166,896 shares of authorized but unissued Class A common stock. Stock options are granted with an exercise price equal to
the stock's fair market value at the date of grant. All stock options under the Plan have ten-year terms and vest and become fully exercisable after three years from the date of grant. At
December 31, 1999, 2000 and 2001, there were 275,330, 139,150 and 139,600 additional shares available for grant under the Plan.

Prior
to the Merger, the Company had a stock option plan under which key officers and employees were granted options at prices equal to fair market value of the stock on the date of
grant. At
December 31, 1999, 2000 and 2001, there were 165,690, 68,956 and 68,956 options outstanding under the prior plan.

The
per share weighted-average fair value of stock options granted during 1999, 2000 and 2001 was $3.37, $3.70 and $1.67 on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 91%, and an expected life of 10 years.

The
Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had
the Company

40

---

determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net earnings would have been reduced to the pro forma
amounts indicated below:

1999

2000

2001Net earnings (loss) available to common shareholders:As reported

$
(10,872
)
$
(20
)
$
(16,137
)Pro forma


(12,334
)

(1,622
)

(16,177
)Diluted earnings (loss) available to common shareholders per share:As reported


(2.55
)

0.00


(3.51
)Pro forma


(2.90
)

(0.36
)

(3.52
)


Stock
option activity during the periods indicated is as follows:

Number of
shares

Weighted
average
exercise
priceOutstanding at December 31, 1998

1,466,143

$
10.057Issued

56,100


7.109Exercised

(437,172
)

0.111Forfeited

(28,000
)

(6.660
)Outstanding at December 31, 1999

1,057,071


14.040Issued

164,000


4.610Exercised

(96,734
)

0.411Forfeited

(27,820
)

(11.235
)Outstanding at December 31, 2000

1,096,517


13.904Issued

139,150


1.875Exercised




Forfeited

(139,600
)

(8.447
)Outstanding at December 31, 2001

1,096,067

$
13.072


41

---

The
following is summary information about the Company's stock options outstanding at December 31, 2001:

Number of
shares

Exercise
price

Expiration date

Number of
shares
exercisable59,697

$
0.216

July 13, 2002

59,6979,259


0.900

May 8, 2005

9,259765,461


17.125

January 20, 2008

765,46130,000


13.125

September 2, 2008

30,00010,000


7.375

June 8, 2009

6,667120,000


4.500

March 10, 2010

40,000101,650


1.875

February 5, 2011

1,096,067






911,084


(15)    Concentration of Sales

Sales to customers in excess of 10% of total net sales for the years ended December 31, 1999, 2000 and 2001 are as follows:

Customer A

Customer BPeriods ended:December 31, 1999

20
%
29
%December 31, 2000

18
%
35
%December 31, 2001

22
%
35
%


Trade
accounts receivable with these customers totaled $9,100 and $8,173 at December 31, 2000 and 2001, respectively.

(16)    Employee Participation Plan

The Morton Metalcraft Co. Employee Participation Plan allows substantially all employees to defer up to 15 percent of their income through payroll
deduction of pre-tax contributions under section 401(k) of the Internal Revenue Code. The Company matches 25 percent of the first 6 percent of pre-tax
income contributed by each employee. Employees may also make contributions of after-tax income. Additionally, the Company may make discretionary contributions to the plan for the benefit
of participating employees. Certain of the acquired subsidiaries also had defined contribution plans which allow for employee pre-tax contributions and employer matching and discretionary
contributions. The expense charged to operations related to defined contribution plans was $365, $490 and $423 for the years ended December 31, 1999, 2000 and 2001, respectively.

42

---

(17)    Earnings (Loss) Per Share

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

Year ended December 31, 1999Income
(numerator)

Shares
(denominator)

Per share
amountBasic loss per share available to common stockholders

$
(10,872
)
4,253,763

$
(2.55
)Effect of dilutive securities




Diluted loss per share available to common stockholders

$
(10,872
)
4,253,763

$
(2.55
)


Year ended December 31, 2000Income
(numerator)

Shares
(denominator)

Per share
amountBasic loss per share available to common stockholders

$
(20
)
4,563,958

$
0.00Effect of dilutive securities




Diluted earnings per share available to common stockholders

$
(20
)
4,563,958

$
0.00


Year ended December 31, 2001Income
(numerator)

Shares
(denominator)

Per share
amountBasic loss per share available to common stockholders

$
(16,137
)
4,600,850

$
(3.51
)Effect of dilutive securities




Diluted earnings per share available to common stockholders

$
(16,137
)
4,600,850

$
(3.51
)


Options
to purchase 1,057,071 shares of Class A common stock at an average purchase price of $14.040 were outstanding at December 31, 1999, but were not included in the
computation of diluted earnings per share because they were anti-dilutive.

Options
to purchase 1,096,517 shares of Class A common stock at an average price of $13.904 per share and warrants to purchase 238,548 shares of Class A common stock at
$.01 per share were outstanding at December 31, 2000, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

43

---

Options
to purchase 1,096,067 shares of Class A common stock at an average price of $13.072 per share and warrants to purchase 238,548 shares of Class A common stock at
$.01 per share were outstanding at December 31, 2001, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

(18)    Related Party Transactions

During the year ended December 31, 1999, the Company paid $64 for merger and acquisition advisory services to two firms affiliated with members of the
Company's board of directors.

On
November 3, 2000, the Company entered into an agreement with First Union Securities, Inc. ("FUSI"), under which FUSI acted as the Company's exclusive financial advisor
with respect to possible debt or equity financings or recapitalizations from November 3, 2000 until March 12, 2002. A director of Morton Industrial Group, Inc. is head of the
Commercial and Industrial Corporate Finance and Mergers and Acquisitions Group at Wachovia Securities, Inc. (formerly FUSI).

(19)    Segment Reporting

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

The
accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Morton
Industrial Group, Inc. accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices, although these
intersegment sales were insignificant in 2000 and 2001.

Morton
Industrial Group, Inc.'s reportable segments are strategic business units that offer different products and services. They are managed separately because each business
requires different technology

44

---

and production methods. Most of the businesses were acquired as a unit, and most of the management at the time was retained.

1999Contract
Metal
Fabrication

Contract
Plastic
Fabrication

TotalRevenues from external customers

$
106,048

$
113,275

$
219,323Intersegment revenues





314


314Interest income





15


15Interest expense


4,802


3,406


8,208Depreciation and amortization


6,428


2,765


9,193Segment operating profit


2,416


(1,594
)

822Segment assets including intangible assets


53,905


71,801


125,706Expenditures for segment fixed assets


3,363


1,600


4,963


2000Contract
Metal
Fabrication

Contract
Plastic
Fabrication

TotalRevenues from external customers

$
150,809

$
128,019

$
278,828Intersegment revenues





596


596Interest expense


4,249


6,552


10,801Depreciation and amortization


5,459


4,163


9,622Segment operating profit


8,093


1,018


9,111Segment assets including intangible assets


58,350


72,183


130,533Expenditures for segment fixed assets


3,912


2,739


6,651


2001Contract
Metal
Fabrication

Contract
Plastic
Fabrication

TotalRevenues from external customers

$
127,103

$
109,287

$
236,390Intersegment revenues





237


237Interest expense


4,028


5,425


9,453Depreciation and amortization


5,471


4,539


10,010Segment operating profit (loss)


2,937


(6,516
)

(3,579
)Segment assets including intangible assets


49,786


57,968


107,754Expenditures for segment fixed assets


3,222


1,160


4,382


(20)    Litigation

On May 1, 2000, Worthington Industries, Inc. filed suit (in the United States District Court for the Southern District of Ohio, Eastern Division)
related to the Company's 1999 acquisition of the

45

---

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 stock that it received. The Company believes 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. The Company has filed a counterclaim against Worthington related to these matters. Management believes that the Company will prevail in this litigation and does not anticipate
any material impact on earnings or financial position.

The
Company is also involved in routine litigation. Management does not believe that any legal proceedings would have a material adverse effect on the Company's financial condition or
results of operations.

46

---



MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESSchedule IIValuation and Qualifying Accounts

|                                 |                              | Additions |   |       |  |      
|-------------------------------- | ---------------------------- | --------- | - | ----- |  | -----
|
|Allowance for doubtful accounts: |                              |           |   |       |  |      
|                                 | Year ended December 31, 1999 |           | $ | 314   |  | 64   
|                                 |                              |           |   |       |  |      
|                                 | Year ended December 31, 2000 |           | $ | 320   |  | 1,430
|                                 |                              |           |   |       |  |      
|                                 | Year ended December 31, 2001 |           | $ | 1,324 |  | 595  
|                                 |                              |           |   |       |  |      

---

*Represents
the acquisition date allowance for doubtful accounts of businesses acquired.

47

---



PART III

Item 10. Directors and Executive Officers of the Registrant.

The information required by this Item 10 about the executive officers and Directors of the Company is incorporated herein by reference to the information set
forth under the caption "Election of Directors" in our definitive proxy statement for the 2002 annual meeting of shareholders, which we expect to file with the Securities and Exchange commission not
later than one hundred twenty days after December 31, 2001 pursuant to Regulation 14A.

Item 11. Executive Compensation.

The information required by this Item 11 is incorporated herein by reference to the information set forth under the caption "Executive Compensation" in our
definitive proxy statement for the 2002 annual meeting of shareholders, which we expect to file with the Securities and Exchange commission not later than one hundred twenty days after
December 31, 2001 pursuant to Regulation 14A.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required by this Item 12 is incorporated herein by reference to the information set forth under the caption "Principal Shareholders of the
Company" in our definitive proxy statement for the 2002 annual meeting of shareholders, which we expect to file with the Securities and Exchange commission not later than one hundred twenty days after
December 31, 2001 pursuant to Regulation 14A.

Item 13. Certain Relationships and Related Transactions.

The information required by this Item 13 is incorporated herein by reference to the information set forth under the caption "Executive
CompensationCertain Relationships and Related Transactions" in our definitive proxy statement for the 2002 annual meeting of shareholders, which we expect to file with the Securities and
Exchange commission not later than one hundred twenty days after December 31, 2001 pursuant to Regulation 14A.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

The
following financial statements of the Company are included in Item 8:

The
following financial statement schedule of the Company is included in Item 8:

Schedule IIValuation
and Qualifying Accounts for the years ended December 31, 1999, 2000 and 2001

48

---



|Exhibit Number and Document Title                                                                                                                                                                                                        |  | Incorporated by Reference to                                                                                                                         |  | Filed Herewith
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|                                                                                                                                                                                                                                         |  |                                                                                                                                                      |  |               
|2.1 and 10.1Agreement and Plan of Merger Between MLX Corp. and Morton Metalcraft Holding Co., dated as of October 20, 1997                                                                                                              |  | Annex B to the Definitive Proxy Statement on Schedule 14A filed by MLX Corp. with the Securities and Exchange Commission ("SEC") on January 6, 1998. |  |               
|2.2 and 10.2Securities Purchase Agreement Among MLX Corp. and Security Holders of Morton Metalcraft Holding Co., dated as of October 20, 1997                                                                                           |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               
|3.1 and 4.1Articles of Incorporation of the registrant as Amended prior to January 20, 1998                                                                                                                                             |  | MLX Corp. Form 10-Q for the quarter ended June 30, 1993                                                                                              |  |               
|3.2 and 4.2Articles of Amendment to Articles of Incorporation of the Registrant Effective January 20, 1998                                                                                                                              |  | Exhibit 3 to Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on February 4, 1998                                                 |  |               
|3.2 and 4.2Bylaws of the Registrant, as Amended                                                                                                                                                                                         |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               
|4.3 and 10.3Credit Agreement Among the Registrant, Metalcraft Co., Morton Metalcraft Co. of North Carolina and Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998                                           |  | Morton Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                  |  |               
|4.4 and 10.4Security Agreement executed by Morton Industrial Group, Inc., Morton Metalcraft Co., and Morton Metalcraft Co. of North Carolina in favor of Harris Trust & Savings Bank, individually and as Agent,
dated January 20, 1998 |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               
|4.5 and 10.5Mortgage and Security Agreement with Assignment of Rents executed by Morton Metalcraft Co. in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998                                       |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               
|4.6 and 10.6Pledge Agreement executed by Registrant in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998                                                                                          |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               
|10.7Limited Indemnification Agreement dated as of October 20, 1997, among MLX Corp., William D. Morton, and Other Morton Metalcraft Shareholders and Option Holders                                                                     |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               
|10.8Industrial Building Lease between Morton Welding Co., Inc., and Morton Metalcraft Co. dated September 1, 1994                                                                                                                       |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                                                         |  |               

49

---

|10.9Lease between Caterpillar, Inc., and Morton Metalcraft Co., Inc. dated June 9, 1995                                 |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------- |  | 
|10.10Lease between Agracel, Inc., and Morton Metalcraft Co. dated November 6, 1996.                                     |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.11Employment Agreement dated as of January 20, 1998, between the Registrant and William D. Morton                    |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.12Employment Agreement dated as of January 20, 1998, between the Registrant and Daryl R. Lindemann                   |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.13MLX Corp. 1997 Stock Option Plan                                                                                   |  | Appendix C to the Definitive Proxy Statement on Schedule 14A filed by MLX Corp. with the SEC on January 6. 1998. |  | 
|10.14MLX Corp. 1995 Stock Option Plan                                                                                   |  | MLX Corp. Definitive Proxy Statement on Schedule 14A for the 1995 Annual Meeting of Stockholders                 |  | 
|10.15Master Lease Agreement between Morton Metalcraft Co. and General Electric Capital Corporation dated August 7, 1996 |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.16Guaranty of Master Lease Agreement by Morton Metalcraft Holding Co., dated August 7, 1996                          |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.17Split Dollar Insurance Agreement between Morton Metalcraft Co. and William D. Morton dated February 3, 1995.       |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.18Split Dollar Assignment between William D. Morton and Morton Metalcraft Co. dated February 3, 1995                 |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.19Split Dollar Insurance Agreement between Morton Metalcraft Co. and William D. Morton dated October 10, 1993        |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.20Split Dollar Assignment between William D. Morton and Morton Metalcraft Co., dated October 10, 1993                |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.21Split Dollar Insurance Agreement between Morton Metalcraft Co. and Daryl R. Lindemann dated October 10, 1993       |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 
|10.22Split Dollar Assignment between Daryl R. Lindemann and Morton Metalcraft Co., dated October 10, 1993               |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                                     |  | 

50

---

|10.23Death Benefit Agreement between Morton Metalcraft Co. and William D. Morton                                                                                                                                                                       |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                          |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | 
|10.24Salary Continuation Agreement between Morton Metalcraft Co. and William D. Morton dated February 26, 1996.                                                                                                                                        |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1997                          |  | 
|10.25Stock Purchase Agreement among the Company and Gary L. George and Gloria J. George, dated March 2, 1998.                                                                                                                                          |  | Exhibit 10.1 to Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on April 14, 1998 |  | 
|10.26Stock Purchase Agreement among the Company, Joseph T. Buie, Jr., and Ernest J. Butler, dated April 8, 1998.                                                                                                                                       |  | Exhibit 10.2 to Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on April 14, 1998 |  | 
|10.27Non-negotiable Promissory Note (subordinated) of the Company to
Joseph T. Buie, Jr., dated April 8, 1998.                                                                                                                                         |  | Exhibit 10.3 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on April 14, 1998    |  | 
|10.28Non-negotiable Promissory Note (subordinated) of the Company to
Ernest. J. Butler, dated April 8, 1998.                                                                                                                                           |  | Exhibit 10.4 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on April 14, 1998    |  | 
|10.29Stock Purchase Agreement among the Company and Richard L. Goreham, Delores A. Staples and William B. Goreham, dated April 27, 1998.                                                                                                               |  | Exhibit 10.1 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998     |  | 
|10.30Credit Agreement dated May 28, 1998 among the Company, Harris Trust and Savings Bank, and the lenders signatory thereto.                                                                                                                          |  | Exhibit 10.2 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998     |  | 
|10.31Mortgage and Security Agreement with Assignment of Rents executed by Carroll George Inc. dated May 28, 1998.                                                                                                                                      |  | Exhibit 10.3 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998     |  | 
|10.32Deed of Trust and Security Agreement with Assignment of Rents executed by B&W Metal Fabricators, Inc.                                                                                                                                             |  | Exhibit 10.4 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998     |  | 
|10.33Amended and Restated Security Agreement executed by the Company, Morton Metalcraft Co., Morton Metalcraft Co. of North Carolina, Morton Metalcraft Co. of South Carolina, Carroll George Inc. and B&W Metal
Fabricators, Inc. dated May 28, 1998. |  | Exhibit 10.5 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998     |  | 
|10.34Amended and Restated Pledge Agreement executed by the Company, Morton Metalcraft Co., Morton Metalcraft Co. of North Carolina, Morton Metalcraft Co. of South Carolina, Carroll George Inc. and B&W Metal
Fabricators, Inc. dated May 28, 1998.   |  | Exhibit 10.6 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998     |  | 

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|10.35Amended and Restated Mortgage and Security Agreement with Assignment of Rents executed by Morton Metalcraft Co., dated May 28, 1998.                                                                                                                                                                     |  | Exhibit 10.7 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998               |  |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | -
|10.35Mortgage and Security Agreement with Assignment of Rents to executed by Mid-Central Plastics, Inc. dated May 28, 1998.                                                                                                                                                                                   |  | Exhibit 10.8 Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on June 12, 1998               |  |  
|10.36First Amendment to Credit Agreement with Harris Trust & Savings Bank.                                                                                                                                                                                                                                    |  | Morton Industrial Group, Inc. Form 10-K for the year ended December 31, 1998                                    |  |  
|10.37Asset Purchase Agreement among the Company, Morton Custom Plastics, LLC, and Worthington Custom Plastics, Inc. dated February 26, 1999 and First Amendment to Asset Purchase Agreement, dated as of April 15,
1999, among the Company, Morton Custom Plastics, LLC and Worthington Custom Plastics, Inc. |  | Exhibits 10.1 and 10.2 to Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on April 29, 1999 |  |  
|10.38Credit Agreement dated as of April 15, 1999, among Morton Custom Plastics, LLC, Morton Holding, LLC and General Electric Capital Corporation                                                                                                                                                             |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on April 29,1999            |  |  
|10.39Agreement dated December 31, 1999 by and among Carroll George Inc., Morton Industrial Group, Inc. and Advanced Component Technologies, Inc.                                                                                                                                                              |  | Exhibit 99.2 to Morton Industrial Group, Inc. Report on Form 8-K filed with SEC on January 18, 2000             |  |  
|10.40Third Amendment to Credit Agreement with Harris Trust & Savings Bank                                                                                                                                                                                                                                     |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on Form 8-K filed with SEC on February 29, 2000            |  |  
|10.41Amended and Restated Agreement with Harris Trust and Savings Bank                                                                                                                                                                                                                                        |  | Exhibit 99.1 to Morton Industrial Group, Inc. Report on Form 10-K filed with SEC on April 1, 2002               |  | X
|10.42Amended and Restated Agreement with General Electric Capital Corporation                                                                                                                                                                                                                                 |  | Exhibit 99.2 to Morton Industrial Group, Inc. Report on Form 10-K filed with SEC on April 1, 2002               |  | X
|13Annual Report                                                                                                                                                                                                                                                                                               |  | Exhibit 13.1 to Morton Industrial Group, Inc. Report on Form 10-K filed with SEC on April 1, 2002               |  | X
|16.2Letter re: change in certifying accountant                                                                                                                                                                                                                                                                |  | Exhibit 16.1 to Morton Industrial Group, Inc. Report on Form 8-K filed with the SEC on February 18, 1999        |  |  
|21.1Subsidiaries of Registrant                                                                                                                                                                                                                                                                                |  |                                                                                                                 |  | X
|23.1Consent of KPMG LLP                                                                                                                                                                                                                                                                                       |  |                                                                                                                 |  | X

None

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                      |  | MORTON INDUSTRIAL GROUP, INC.
|--------------------- |  | -----------------------------
|                      |  |                              
|Dated: March 29, 2002 |  | By:                          

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the
dates indicated.

|Signatures                              |  | Title                                                                      |  | Date          
|--------------------------------------- |  | -------------------------------------------------------------------------- |  | --------------
|/s/WILLIAM D. MORTONWilliam D. Morton   |  | President, Chief Executive Officer, and Chairman of the Board of Directors |  | March 29, 2002
|/s/THOMAS D. LAUERMANThomas D. Lauerman |  | Vice President of Finance and Treasurer (Principal Accounting Officer)     |  | March 29, 2002
|/s/FRED W. BROLINGFred W. Broling       |  | Director                                                                   |  | March 29, 2002
|/s/MARK W. MEALYMark W. Mealy           |  | Director                                                                   |  | March 29, 2002
|Willem F.P. de Vogel                    |  | Director                                                                   |  |               

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SHAREHOLDER INFORMATION

CORPORATE OFFICES

Morton
Industrial Group, Inc.
1021 W. Birchwood
Morton, Illinois 61550-0429
Phone: 309-263-3300 Fax: 309-263-3216

INVESTOR INFORMATION

Shareholders
and prospective investors are welcome to call or write with questions or requests for additional information. Please direct inquiries to Van Negris at:

Kehoe,
White, Van Negris & Company, Inc.
766 Madison Avenue
New York, NY 10021
Phone: 212-396-0606 Fax: 212-396-9025

ANNUAL MEETING

The
Annual Meeting of the Shareholders of Morton Industrial Group, Inc. will be held at:

Bertha
Frank Performaing Arts Center
350 N. Illinois Avenue
Morton, Illinois 61550
Tuesday, June 11, 2002 at 10:00 a.m. (CDT)

FORM 10-K

A
copy of form 10-K, the Annual Report which the Company is required to file with the Securities and Exchange Commission, is available without charge upon request to the Company at
the above address.

STOCK TRANSFER AGENT AND REGISTRAR

For
inquiries about stock transfers or address changes, shareholders may contact:

American
Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10038
Phone: 800-937-5449

INDEPENDENT PUBLIC ACCOUNTANTS

KPMG
LLP
Indianapolis, Indiana

STOCK MARKET INFORMATION

The
common stock of Morton Industrial Group, Inc. is traded on the Nasdaq SmallCap Market under the ticker symbol MGRP.

54

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BOARD OF DIRECTORS

William
D. Morton
    Chairman of the Board, President and CEO
    Morton Industrial Group, Inc.

Fred
W. Broling
    President and CEO
    US Precision Glass

Willem
F.P. de Vogel
    President
    Three Cities Research, Inc.

Mark
W. Mealy
    Head of the Commercial
    and Industrial Corporate Finance 
    and Mergers and Acquisition Group
    Wachovia Securities, Inc.

CORPORATE OFFICERS

William
D. Morton
    Chairman of the Board, President and CEO

Daryl
R. Lindemann
    Secretary

Thomas
D. Lauerman
    Vice President of Finance & Treasurer

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