##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended July 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER 0-13198
 MORTON INDUSTRIAL GROUP, INC.
  Georgia
    
    38-0811650(State or other jurisdiction of
    
    (IRS EmployerIncorporation or organization)
    
    Identification No.)
 1021 W. Birchwood, Morton, Illinois 61550   (309) 266-7176
 þ o
 o þ
  o o þ
 o þ
  Outstanding as ofAugust 4, 2006Class A Common Stock, $.01 par value
    
    
    4,880,878Class B Common Stock, $.01 par value
    
    
    100,000




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II OTHER INFORMATIONITEM 1. LEGALITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESCertificationCertificationCertificationAmendment to Amended and Restated Credit AgreementAmendment to Amended and Restated Note and Warrant to Purchase Agreement    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended July 1, 2006 and July 2, 2005
(Dollars in thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Net sales
    
    $
    54,314
    
    
    
    53,558
    
    
    
    107,912
    
    
    
    107,681Cost of sales
    
    
    45,571
    
    
    
    45,969
    
    
    
    91,045
    
    
    
    92,958Gross profit
    
    
    8,743
    
    
    
    7,589
    
    
    
    16,867
    
    
    
    14,723Operating expenses:Selling expenses
    
    
    838
    
    
    
    795
    
    
    
    1,640
    
    
    
    1,578Administrative expenses
    
    
    3,587
    
    
    
    3,109
    
    
    
    6,959
    
    
    
    5,865Total operating expenses
    
    
    4,425
    
    
    
    3,904
    
    
    
    8,599
    
    
    
    7,443Operating income
    
    
    4,318
    
    
    
    3,685
    
    
    
    8,268
    
    
    
    7,280Other income (expense):Interest expense
    
    
    (1,269
    )
    
    
    (1,523
    )
    
    
    (2,601
    )
    
    
    (2,807
    )Gain on redemption of preferred stock
    
    
    850
    
    
    
    850
    
    
    
    1,700
    
    
    
    1,700Other
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    62Total other income (expense)
    
    
    (419
    )
    
    
    (651
    )
    
    
    (901
    )
    
    
    (1,045
    )Earnings before income taxes
    
    
    3,899
    
    
    
    3,034
    
    
    
    7,367
    
    
    
    6,235Income taxes
    
    
    300
    
    
    
    320
    
    
    
    575
    
    
    
    520Net earnings
    
    $
    3,599
    
    
    $
    2,714
    
    
    
    6,792
    
    
    
    5,715Earnings per common share  basic
    
    $
    0.72
    
    
    $
    0.54
    
    
    $
    1.36
    
    
    $
    1.16Earnings per common share  diluted
    
    $
    0.61
    
    
    $
    0.46
    
    
    $
    1.15
    
    
    $
    0.96




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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets
July 1, 2006 and December 31, 2005
(Dollars, except par values, in thousands)
 July 1, 2006
    
    
    December 31, 2005(Unaudited)AssetsCurrent assets:Trade accounts receivable, less allowances for doubtful accounts
and returns of $162 in 2006 and $195 in 2005
    
    $
    19,070
    
    
    
    12,714Unbilled receivables
    
    
    95
    
    
    
    801Inventories
    
    
    22,864
    
    
    
    20,631Prepaid expenses and other current assets
    
    
    1,568
    
    
    
    824Deferred income taxes
    
    
    2,583
    
    
    
    2,583Total current assets
    
    
    46,180
    
    
    
    37,553Property, plant, and equipment, net
    
    
    25,821
    
    
    
    23,432Intangible assets, at cost, less accumulated amortization
    
    
    541
    
    
    
    570Deferred income taxes
    
    
    10,617
    
    
    
    10,617Other assets
    
    
    2,553
    
    
    
    1,622$
    85,712
    
    
    
    73,794Liabilities and Stockholders EquityCurrent liabilities:Outstanding checks in excess of bank balance
    
    $
    4,376
    
    
    
    3,050Current installments of long-term debt
    
    
    6,521
    
    
    
    7,139Accounts payable
    
    
    22,050
    
    
    
    19,295Accrued payroll and payroll taxes
    
    
    3,005
    
    
    
    2,226Other accrued expenses
    
    
    2,248
    
    
    
    2,416Income taxes payable
    
    
    249
    
    
    
    499Redeemable preferred stock
    
    
    200
    
    
    
    500Total current liabilities
    
    
    38,649
    
    
    
    35,125Long-term debt, excluding current installments
    
    
    35,041
    
    
    
    31,764Other liabilities
    
    
    250
    
    
    
    250Redeemable preferred stock
    
    
    1,134
    
    
    
    2,834Warrants payable
    
    
    2,897
    
    
    
    2,872Total liabilities
    
    
    77,971
    
    
    
    72,845Stockholders equity:Class A common stock  $0.01 par value. Authorized 20,000,000 shares; issued
and outstanding 4,880,878 shares in 2006 and 2005
    
    
    49
    
    
    
    49Class B common stock  $0.01 par value. Authorized 200,000 shares; issued
and outstanding 100,000 shares in 2006 and 2005
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    20,947
    
    
    
    20,947Accumulated deficit
    
    
    (13,256
    )
    
    
    (20,048
    )Total stockholders
equity
    
    
    7,741
    
    
    
    949$
    85,712
    
    
    
    73,794




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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For The Six Months Ended July 1, 2006 and July 2, 2005
(Dollars in thousands)
(Unaudited)
 Six Months EndedJuly 1, 2006
    
    
    July 2, 2005Cash flows from operating activities:Net earnings
    
    $
    6,792
    
    
    
    5,715Adjustments to reconcile net earnings to net cash provided by
operating activities:Depreciation and amortization of plant and equipment and intangible assets
    
    
    2,666
    
    
    
    2,740Other amortization and accretion
    
    
    664
    
    
    
    724Provision for bad debts
    
    
    32
    
    
    
    35Unrealized gain on derivative instruments
    
    
    (49
    )
    
    
    (85
    )Gain on redemption of preferred stock
    
    
    (1,700
    )
    
    
    (1,700
    )Gain on sale of plant and equipment
    
    
    (5
    )
    
    
    Changes in operating assets and liabilities:Increase in trade accounts receivable
    
    
    (6,388
    )
    
    
    (6,157
    )Decrease in unbilled receivables
    
    
    706
    
    
    
    924Decrease (increase) in inventories
    
    
    (2,233
    )
    
    
    392Increase in prepaid expenses
    
    
    (744
    )
    
    
    (485
    )Decrease (increase) in other assets
    
    
    (1,068
    )
    
    
    176Increase in accounts payable
    
    
    2,755
    
    
    
    457Increase (decrease) in income taxes payable
    
    
    (250
    )
    
    
    (65
    )Increase (decrease) in accrued expenses and other liabilities
    
    
    660
    
    
    
    (973
    )Net cash provided by operating activities
    
    
    1,838
    
    
    
    1,698Cash flows from investing activities:Capital expenditures
    
    
    (5,230
    )
    
    
    (2,565
    )Proceeds from sale of property and equipment
    
    
    209
    
    
    
    20Payment received on note receivable for sale of business
    
    
    
    
    
    
    1,102Net cash used in investing activities
    
    
    (5,021
    )
    
    
    (1,443
    )Cash flows from financing activities:Increase (decrease) in checks issued in excess of bank balance
    
    
    1,326
    
    
    
    (185
    )Net borrowings on revolving debt
    
    
    7,700
    
    
    
    2,300Principal payments on long-term debt and capital leases
    
    
    (5,445
    )
    
    
    (2,085
    )Redemption of preferred stock
    
    
    (300
    )
    
    
    (300
    )Proceeds from options exercised
    
    
    
    
    
    
    27Debt issuance costs
    
    
    (98
    )
    
    
    (12
    )Net cash provided by (used in) financing activities
    
    
    3,183
    
    
    
    (255
    )Net change in cash
    
    
    
    
    
    
    Cash at beginning of period
    
    
    
    
    
    
    Cash at end of period
    
    $
    
    
    
    
    Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    2,083
    
    
    
    1,945Income taxes
    
    
    932
    
    
    
    585
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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 Condensed Consolidated Statement of Stockholders Equity
For the Six Months Ended July 1, 2006
(Dollars in thousands)
(Unaudited)
 Class A
    
    
    Class Bcommon stock
    
    
    common stock
    
    
    AdditionalShares
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    paid-in
    
    
    Accumulatedissued
    
    
    Amount
    
    
    issued
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    TotalBalance, December 31, 2005
    
    
    4,880,878
    
    
    $
    49
    
    
    
    100,000
    
    
    $
    1
    
    
    $
    20,947
    
    
    $
    (20,048
    )
    
    $
    949Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,792
    
    
    
    6,792Balance, July 1, 2006
    
    
    4,880,878
    
    
    $
    49
    
    
    
    100,000
    
    
    $
    1
    
    
    $
    20,947
    
    
    $
    (13,256
    )
    
    $
    7,741




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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended July 1, 2006 and July 2, 2005
(Unaudited)
 (1) Merger Agreement
  .
 (2) Nature of Business
  (3) Interim Financial Data




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(4) Inventories
  July 2,
    
    
    December 31,2005
    
    
    2005Finished goods
    
    $
    9,294
    
    
    $
    9,025Work-in-process
    
    
    4,760
    
    
    
    4,082Raw materials
    
    
    8,810
    
    
    
    7,524$
    22,864
    
    
    $
    22,631
 (5) Earnings Per Share
  Quarter Ended July 1, 2006
    
    
    Quarter Ended July 2, 2005Earnings
    
    
    Shares
    
    
    Per Share
    
    
    Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic
    
    $
    3,599,000
    
    
    
    4,980,878
    
    
    $
    0.72
    
    
    $
    2,714,000
    
    
    
    4,977,069
    
    
    $
    0.54Effect of dilutive
securities, stock
options and
warrants
    
    
    
    
    
    
    913,973
    
    
    
    (0.11
    )
    
    
    
    
    
    
    960,870
    
    
    
    (0.08
    )Diluted
    
    $
    3,599,000
    
    
    
    5,894,851
    
    
    $
    0.61
    
    
    $
    2,714,000
    
    
    
    5,937,939
    
    
    $
    0.46
 Six Months Ended July 1, 2006
    
    
    Six Months July 2, 2005Earnings
    
    
    Shares
    
    
    Per Share
    
    
    Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic
    
    $
    6,792,000
    
    
    
    4,980,878
    
    
    $
    1.36
    
    
    $
    5,715,000
    
    
    
    4,920,923
    
    
    $
    1.16Effect of dilutive
securities, stock
options and
warrants
    
    
    
    
    
    
    910,522
    
    
    
    (0.21
    )
    
    
    
    
    
    
    1,019,734
    
    
    
    (0.20
    )Diluted
    
    $
    6,792,000
    
    
    
    5,891,400
    
    
    $
    1.15
    
    
    $
    5,715,000
    
    
    
    5,940,657
    
    
    $
    0.96
 (6) Segment Reporting
 3⁄4
 (7) Debt and Warrants
 March 26, 2004 Refinancing and Subsequent Amendments




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(8) Stock Option Plan
  (9) Impact of Recently Issued Accounting Standards




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(10) Redeemable Preferred Stock
   (11) Unbilled Receivables
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  GENERAL




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RESULTS OF OPERATIONS
 Second quarter, 2006 versus second quarter, 2005




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First six months, 2006 versus first six months, 2005




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LIQUIDITY AND CAPITAL RESOURCES
   March 26, 2004 Refinancing and Subsequent Amendments




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Redeemable Preferred Stock
  Capital Expenditures
   Significant Cash Commitments
   Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(In thousands)Bank indebtedness:Term loan
    
    $
    10,928
    
    
    $
    6,100
    
    
    $
    4,828
    
    
    $
    
    
    
    $
    Revolving line of credit
    
    
    17,400
    
    
    
    
    
    
    
    17,400
    
    
    
    
    
    
    
    Senior subordinated debt
    
    
    12,999
    
    
    
    
    
    
    
    12,999
    
    
    
    
    
    
    
    Other debt obligations
    
    
    967
    
    
    
    483
    
    
    
    484
    
    
    
    
    
    
    
    Interest  estimated
    
    
    12,250
    
    
    
    3,950
    
    
    
    8,300
    
    
    
    
    
    
    
    Operating leases
    
    
    26,511
    
    
    
    7,069
    
    
    
    14,896
    
    
    
    4,546
    
    
    
    Preferred stock redemption
    
    
    200
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    81,255
    
    
    $
    17,802
    
    
    $
    58,907
    
    
    $
    4,546
    
    
    $
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##### Table of Contents



FORWARD LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Interest Rate Risk




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Steel Commodity Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
  Changes in internal controls.




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PART II 3⁄4 OTHER INFORMATION
 
 ITEM 1. LEGAL
    
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
   31.1
    
    Certification pursuant to Rule 13a-14(a)31.2
    
    Certification pursuant to Rule 13a-14(a)32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.99.1
    
    Sixth Amendment to Second Amended and Restated Credit Agreement99.2
    
    Fourth Amendment to Amended and Restated Note and Warrant Purchase Agreement
  
     
 SIGNATURES
  MORTON INDUSTRIAL GROUP, INC.By: /s/ Daryl R. LindemannDaryl R. LindemannChief Financial Officer, Secretary and
Principal Accounting OfficerDated: August 15, 2006