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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

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**FORM 10–Q**

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

**For theQuarterly Period Ended June 30, 2001**

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

**FOR THETRANSITION PERIOD FROM             TO            **

**COMMISSIONFILE NUMBER 0–13198**

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**MORTON INDUSTRIAL GROUP,INC.**(Exact name of registrant as specified inits charter)

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

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

**(309)266–7176**(Registrant's telephone number, includingarea code)

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

|                                       | **Outstanding as of****August  3, 2001** |
|--------------------------------------------|------------------------------------------|
|                                       | ****                                     |
|                                       |                                     |
| Class A Common Stock, $.01 par  value | 4,400,850                                |
| Class B Common Stock, $.01 par  value | 200,000                                  |

----

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**PART I — FINANCIAL INFORMATION**

ITEM 1. FINANCIAL STATEMENTS

MORTON INDUSTRIAL GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFor the Three and Six Months Ended June 30, 2001 and July 1, 2000(Dollars In Thousands, Except Per Share Data)(Unaudited)

|                                               | Three Months  Ended                |      | Six Months Ended |      |
|----------------------------------------------------|------------------------------------|-----------|------------------|-----------|
|                                               | June 30, 2001                      |      | July 1, 2000     |      | June 30, 2001 |   | July 1, 2000 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Net sales                                          | $                                  | 61,718    |             | $         | 71,887 |   | $ | 136,122 |   | $ | 144,981 |   |
| Cost of sales                                      | 54,761                             |      | 61,669           |      | 119,588 |   | 123,994 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Gross profit                                       | 6,957                              |      | 10,218           |      | 16,534 |   | 20,987 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Operating expenses                                 |                               |      |             |      |   |   |   |   |
|                                               | Selling expenses                   | 1,369     |             | 1,652     |   | 3,010 |   | 3,151 |   |
|                                               | Administrative expenses            | 4,345     |             | 5,635     |   | 9,685 |   | 10,615 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                               | Total operating expenses           | 5,714     |             | 7,287     |   | 12,695 |   | 13,766 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                               | Operating income                   | 1,243     |             | 2,931     |   | 3,839 |   | 7,221 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Other income (expense)                             |                               |      |             |      |   |   |   |   |
|                                               | Interest expense                   | (2,412    | )                | (2,730    | ) | (4,977 | ) | (5,321 | ) |
|                                               | Other                              | 47        |             | 329       |   | 49 |   | 341 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                               | Total other income (expense)       | (2,365    | )                | (2,401    | ) | (4,928 | ) | (4,980 | ) |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                               | Income (loss) before income  taxes | (1,122    | )                | 530       |   | (1,089 | ) | 2,241 |   |
|                                               |                               |      |             |      |   |   |   |   |
| Income taxes                                       | -                                  |      | 210              |      | - |   | 870 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Net earnings (loss)                                | (1,122                             | )         | 320              |      | (1,089 | ) | 1,371 |   |
| Accretion of discount on preferred shares          | (272                               | )         | (229             | )         | (507 | ) | (427 | ) |
|                                               |                                    |      |                  |      |  |   |  |   |
| Net income (loss) available to common shareholders | $                                  | (1,394    | )                | $         | 91 |   | $ | (1,596 | ) | $ | 944 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Earnings (loss) per common share                   |                               |      |             |      |   |   |   |   |
|                                               | Basic                              | $         | (0.31            | )         | $ | 0.02 |   | $ | (0.35 | ) | $ | 0.21 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                               | Diluted                            | $         | (0.31            | )         | $ | 0.02 |   | $ | (0.35 | ) | $ | 0.20 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
| Weighted average number of common shares           |                               |      |             |      |   |   |   |   |
|                                               | Basic                              | 4,600,850 |             | 4,564,167 |   | 4,600,850 |   | 4,534,294 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                               | Diluted                            | 4,600,850 |             | 4,662,996 |   | 4,600,850 |   | 4,660,305 |   |
|                                               |                                    |      |                  |      |  |   |  |   |
|                                                    |                                    |           |                  |           |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

**MORTON INDUSTRIAL GROUP, INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETSJune 30, 2001 and December 31, 2000(Dollars in thousands)**

|                                                       | **June 30, 2001**                                                                                   |       | **December 31, 2000** |       |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
|                                                       | ****                                                                                                |       | ****                  |       |
|                                                       | **(Unaudited)**                                                                                     |       |                  |       |
| **Assets**                                                 |                                                                                                | ** ** |                  | ** ** |
|                                                       |                                                                                                |       |                  |       |
| Current  assets:                                           |                                                                                                | ** ** |                  | ** ** |
|                                                       | Trade accounts receivable, less  allowance for doubtful accounts of $428 in 2001 and $1,324 in 2000 | $          | 25,200                |       | 28,198 |   |
|                                                       | Inventories                                                                                         | 25,451     |                  | 29,429     |   |
|                                                       | Prepaid expenses                                                                                    | 3,009      |                  | 2,474      |   |
|                                                       | Deferred  income taxes                                                                              | 1,650      |                  | 1,650      |   |
|                                                       |                                                                                                     |       |                       |       |
|                                                       | Total current assets                                                                                | 55,310     |                  | 61,751     |   |
|                                                       |                                                                                                     |       |                       |       |
| Property,  plant, and equipment, net                       | 49,844                                                                                              |       | 51,555                |       |
| Intangible  assets, at cost, less accumulated amortization | 10,627                                                                                              |       | 11,186                |       |
| Deferred  income taxes                                     | 5,398                                                                                               |       | 5,398                 |       |
| Other  assets                                              | 538                                                                                                 |       | 643                   |       |
|                                                       |                                                                                                     |       |                       |       |
|                                                       | $                                                                                                   | 121,717    |                  | 130,533    |   |
|                                                       |                                                                                                     |       |                       |       |
| **Liabilities and  Stockholders' Equity (Deficit)**        |                                                                                                | ** ** |                  | ** ** |
|                                                       |                                                                                                |       |                  |       |
| Current  liabilities:                                      |                                                                                                |       |                  |       |
|                                                       | Outstanding checks in excess of  bank balance                                                       | $          | 3,316                 |       | 2,792 |   |
|                                                       | Current  installments of long-term debt                                                             | 11,116     |                  | 10,201     |   |
|                                                       | Accounts payable                                                                                    | 30,815     |                  | 30,735     |   |
|                                                       | Accrued expenses                                                                                    | 6,273      |                  | 5,165      |   |
|                                                       |                                                                                                     |       |                       |       |
|                                                       | Total current liabilities                                                                           | 51,520     |                  | 48,893     |   |
|                                                       |                                                                                                     |       |                       |       |
| Long-term  debt, excluding current installments            | 67,778                                                                                              |       | 78,156                |       |
| Other  liabilities                                         | 725                                                                                                 |       | 280                   |       |
|                                                       |                                                                                                     |       |                       |       |
|                                                       | Total liabilities                                                                                   | 120,023    |                  | 127,329    |   |
|                                                       |                                                                                                     |       |                       |       |
| Redeemable  preferred stock                                | 6,784                                                                                               |       | 6,277                 |       |
|                                                       |                                                                                                     |       |                       |       |
| Stockholders’  equity (deficit):                      |                                                                                                |       |                  |       |
|                                                       | Class A common stock                                                                                | 44         |                  | 44         |   |
|                                                       | Class B common stock                                                                                | 2          |                  | 2          |   |
|                                                       | Additional paid-in capital                                                                          | 20,883     |                  | 20,883     |   |
|                                                       | Retained deficit                                                                                    | (25,598    | )                     | (24,002    | ) |
|                                                       | Accumulated other comprehensive  loss                                                               | (421       | )                     | -          |   |
|                                                       |                                                                                                     |       |                       |       |
|                                                       | Total stockholders’ equity  (deficit)                                                          | (5,090     | )                     | (3,073     | ) |
|                                                       |                                                                                                     |       |                       |       |
|                                                       | $                                                                                                   | 121,717    |                  | 130,533    |   |
|                                                       |                                                                                                     |       |                       |       |
|                                                            |                                                                                                     |            |                       |            |  |  |  |

Seeaccompanying notes to condensed consolidated financial statements.

 

**MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Stockholders’ Equity (Deficit)For the Six Months Ended June 30, 2001(Dollars in thousands)(Unaudited)**

|                        | **Class A********common stock******                           |   | **Class B********common stock****** |   | **Additional********paid-in** |    | **Retained********earnings** |   | **Accumulated********other********comprehensive** |   |          |   |
|-----------------------------|---------------------------------------------------------------|--------|-------------------------------------|--------|-------------------------------|---------|------------------------------|--------|---------------------------------------------------|--------|---------------|--------|
|                        | **Shares**                                                    |   |                                |   | **Shares**                    |    |                         |   |
|                        | **issued**                                                    |   | **Amount**                          |   | **issued**                    |    | **Amount**                   |   | **capital**                                       |   | **(deficit)** |   | **loss** |   | **Total** |   |
|                        |                                                               |   |                                     |   |                               |    |                              |   |                                                   |   |               |   |  |   |  |   |
| Balance,  December 31, 2000 | 4,400,850                                                     |   | $                                   | 44     |                          | 200,000 |                         | $      | 2                                                 |   | $             | 20,883 |   | $ | (24,002 | ) | $ | — |   | $ | (3,073 | ) |
|                        |                                                          |   |                                |   |                          |    |                         |   |                                              |   |          |   |   |   |   |   |
|                        | Comprehensive (loss):                                         |   |                                |   |                          |    |                         |   |                                              |   |          |   |   |   |   |   |   |
|                        | Net earnings (loss)                                           | — |                                | — |                          | —  |                         | — |                                              | — |          | (1,089 | ) | — |   | (1,089 | ) |
|                        | Other comprehensive (loss), (loss) on derivative  instruments | — |                                | — |                          | —  |                         | — |                                              | — |          | — |   | (337 | ) | (337 | ) |
|                        |                                                          |   |                                |   |                          |    |                         |   |                                              |   |          |   |   |   |   |  |   |
|                        | Total comprehensive (loss)                                    |   |                                |   |                          |    |                         |   |                                              |   |          |   |   |   |   | (1,426 |  ) |
|                        |                                                          |   |                                |   |                          |    |                         |   |                                              |   |          |   |   |   |   |  |   |
|                        | Transition adjustment resulting from adoption of FASB 133     | — |                                | — |                          | —  |                         | — |                                              | — |          | — |   | (84 | ) | (84 | ) |
|                        | Accretion of discount on preferred shares                     | — |                                | — |                          | —  |                         | — |                                              | — |          | (507   | ) | — |   | (507 | ) |
|                        |                                                               |   |                                     |   |                               |    |                              |   |                                                   |   |               |   |  |   |  |   |   |
| Balance,  June 30, 2001     | 4,400,850                                                     |   | $                                   | 44     |                          | 200,000 |                         | $      | 2                                                 |   | $             | 20,883 |   | $ | (25,598 | ) | $ | (421 | ) | $ | (5,090 | ) |
|                        |                                                               |   |                                     |   |                               |    |                              |   |                                                   |   |               |   |  |   |  |   |
|                             |                                                               |        |                                     |        |                               |         |                              |        |                                                   |        |               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

See accompanying notes to condensedconsolidated financial statements.

 

MORTON INDUSTRIAL GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWFor the Six Months Ended June 30 , 2001 and July 1, 2000(Dollars InThousands)(Unaudited)

|                                             | 2001                                                         |   | 2000   |   |
|--------------------------------------------------|--------------------------------------------------------------|--------|--------|--------|
|                                             |                                                              |   |        |   |
| Net cash provided by operating activities        | $                                                            | 11,867 |   | $      | 3,788 |   |
|                                             |                                                              |   |        |   |
| Cash flows from investing activities             |                                                         |   |   |   |
|                                             | Capital expenditures                                         | (2,723 | )      | (3,393 | ) |
|                                             | Increase in intangible assets                                | (205   | )      | (219   | ) |
|                                             | Proceeds from sale of business  unit                         | -      |   | 1,115  |   |
|                                             |                                                              |   |        |   |
|                                             | Net cash used in investing  activities                       | (2,928 | )      | (2,497 | ) |
|                                             |                                                              |   |        |   |
| Cash flows from financing activities             |                                                         |   |   |   |
|                                             | Net borrowings (repayments)  under revolving credit facility | (5,084 | )      | 2,960  |   |
|                                             | Cash received on exercised  options                          | -      |   | 37     |   |
|                                             | Principal payments on long-term debt                         | (4,379 | )      | (7,027 | ) |
|                                             | Increase in checks issued in  excess of bank balance         | 524    |   | 2,739  |   |
|                                             |                                                              |   |        |   |
|                                             | Net cash provided by (used in)  financing activities         | (8,939 | )      | (1,291 | ) |
|                                             |                                                              |   |        |   |
| Net increase in cash                             | -                                                            |   | -      |   |
| Cash at beginning of period                      | -                                                            |   | -      |   |
|                                             |                                                              |   |        |   |
| Cash at end of period                            | $                                                            | -      |   | $      | - |   |
|                                             |                                                              |   |        |   |
| Supplemental disclosure of cash flow information |                                                         |   |   |   |
|                                             | Cash paid during the period  for:                            |   |   |   |   |
|                                             | Interest                                                     | $      | 5,206  |   | $ | 5,365 |   |
|                                             |                                                              |   |        |   |
|                                             | Income taxes                                                 | $      | -      |   | $ | - |   |
|                                             |                                                              |   |        |   |
|                                                  |                                                              |        |        |        |  |  |  |  |  |

Seeaccompanying notes to condensed consolidated financial statements.

 

**MORTONINDUSTRIAL GROUP, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the Three and Six Months Ended June 30, 2001 and July 1, 2000 (Unaudited)**

**(1)  Nature of Business.**

             The Company, operating through itssubsidiaries, is a contract manufacturer and supplier of high-qualityfabricated sheet metal and plastic components and subassemblies forconstruction, agricultural, and industrial original equipment manufacturerslocated primarily in the Midwestern and Southeastern United States.

**(2)  Interim Financial Data.**

             The Condensed ConsolidatedFinancial Statements at June 30, 2001, and July 1, 2000, and for the threemonths and six months then ended are unaudited and reflect all adjustments,consisting of normal recurring accruals which are, in the opinion ofmanagement, necessary for a fair presentation of the financial position,operating results, and cash flows for the interim periods indicated. TheCompany's fiscal quarters end on a Saturday (nearest to a quarter end) exceptfor the fourth quarter which ends on December 31. For both the quartersended June 30, 2001, and July 1, 2000, there were 64 shipping days.  For the six months ended June 30, 2001 andJuly 1, 2000, there were 128 and 129 shipping days, respectively.  Results of operations for the interimperiods are not necessarily indicative of the results of operations for thefull fiscal year. The condensed consolidated financial statements should beread in connection with the consolidated financial statements and notesthereto, together with management's discussion and analysis of financialcondition and results of operations of Morton Industrial Group, Inc.contained in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2000.

**(3) **TheCompany's inventory, in thousands of dollars, as of June 30, 2001, andDecember 31, 2000, is summarized as follows:

|                                                        | **June 30, 2001** |   | **December 31, 2000** |
|-------------------------------------------------------------|-------------------|--------|-----------------------|
|                                                        |                   |   |                       |
|                                                        |              |   |                  |
| Raw  materials, purchased parts and manufactured components | $                 | 10,798 |                  | $ | 12,753 |
| Work–in–process                                   | 6,561             |   | 7,121                 |
| Finished  goods                                             | 8,092             |   | 9,555                 |
|                                                        |                   |   |                       |
|                                                        | $                 | 25,451 |                  | $ | 29,429 |
|                                                        |                   |   |                       |

**4)  Earnings Per Share.**

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

|                                                    | **Quarter Ended June 30, 2001** |       | **Quarter Ended July 1, 2000** |
|---------------------------------------------------------|---------------------------------|------------|--------------------------------|
|                                                    | ****                            |       | ****                           |
|                                                    | **(Loss) (Numerator)**          |       | **Shares (Denominator)**       |   | **Per Share Amount** |   | **Earnings (Numerator)** |   | **Shares (Denominator)** |   | **Per Share Amount** |
|                                                    |                                 |       |                                |   |  |   |  |   |  |   |  |
|                                                    |                            |       |                           |   |   |   |   |   |   |   |   |
| Basic income (loss)  available to common shareholders   | $                               | (1,394,000 | )                              | 4,600,850 |   | $ | (.31 | ) | $ | 91,000 |   | 4,564,167 |   | $ | .02 |
|                                                    |                                 |       |                           |   |   |   |  |   |   |   |   |
|                                                    |                            |       |                           |   |   |   |   |   |   |   |   |
| Effect of dilutive  securities, stock options           |                            |       | -                              |   | - |   |   |   | 98,929 |   | - |
|                                                    |                            |       |                                |   |  |   |   |   |  |   |  |
|                                                    |                            |       |                           |   |   |   |   |   |   |   |   |
| Diluted income (loss)  available to common shareholders |                            |       | 4,600,850                      |   | $ | (.31 | ) |   |   | 4,662,996 |   | $ | .02 |
|                                                    |                            |       |                                |   |  |   |   |   |  |   |  |
|                                                         |                                 |            |                                |  |  |  |  |  |  |  |  |  |  |  |  |

 

|                                                    | **Six Months Ended June 30, 2001** |       | **Six Months Ended July 1, 2000** |      |
|---------------------------------------------------------|------------------------------------|------------|-----------------------------------|-----------|
|                                                    | ****                               |       | ****                              |      |
|                                                    | **(Loss) (Numerator)**             |       | **Shares (Denominator)**          |      | **Per Share Amount** |   | **Earnings (Numerator)** |   | **Shares (Denominator)** |   | **Per Share Amount** |   |
|                                                    | ****                               |       | ****                              |      | **** |   | **** |   | **** |   | **** |   |
|                                                    |                               |       |                              |      |   |   |   |   |   |   |   |   |
| Basic income (loss)  available to common shareholders   | $                                  | (1,596,000 | )                                 | 4,600,850 |   | $ | (.35 | ) | $ | 944,000 |   | 4,534,294 |   | $ | .21 |   |
|                                                    |                                    |       |                              |      |   |   |  |   |   |   |   |   |
|                                                    |                               |       |                              |      |   |   |   |   |   |   |   |   |
| Effect of dilutive  securities, stock options           |                               |       | -                                 |      | - |   |   |   | 126,011 |   | (.01 | ) |
|                                                    |                               |       |                                   |      |  |   |   |   |  |   |  |   |
|                                                    |                               |       |                              |      |   |   |   |   |   |   |   |   |
| Diluted income (loss)  available to common shareholders |                               |       | 4,600,850                         |      | $ | (.35 | ) |   |   | 4,660,305 |   | $ | .20 |   |
|                                                    |                               |       |                                   |      |  |   |   |   |  |   |  |   |
|                                                         |                                    |            |                                   |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

**(5)  Segment Reporting.**

             The Company has two reportablesegments, contract metal fabrication and contract plastic fabrication. Thecontract metal fabrication segment provides full service fabrication of partsand sub-assemblies for the construction, agricultural and industrial equipmentindustry. The contract plastic fabrication segment provides full-service vacuumformed and injected-molded parts and sub-assemblies for the construction,agricultural and industrial equipment industry. The following segment data isfor the quarter and six months ended June 30, 2001 and July 1, 2000: **Contract****Metal** **Fabrication** **Contract****Plastic** **Fabrication** **Total**    **Quarter Ended June 30, 2001**     Revenues  from external customers$35,534 $26,184 $61,718Segment  operating income2,639 (1,396)1,243 **Quarter Ended July 1, 2000**     Revenues  from external customers$41,832 $30,055 $71,887Segment  operating income906 25 2,931       **Contract** **Metal** **Fabrication** **Contract** **Plastic** **Fabrication** **Total**    **Six Months Ended June 30, 2001**     Revenues  from external customers$76,792 $59,330 $136,122Segment  operating income4,950 (1,111)3,839 **Six Months Ended July 1, 2000**     Revenues  from external customers$82,790 $62,191 $144,981Segment  operating income6,624 597 7,221      
**(6) Derivative Instruments**

          The Company adopted Statement of FinancialAccounting Standards No. 133 “Accounting for Derivative Instruments and HedgingActivities” (SFAS 133) as amended by SFAS No. 137 and No. 138 on January 1,2001.  SFAS 133 requires that allderivative instruments be recorded on the balance sheet at their fairvalue.  Gains or losses resulting fromchanges in the values of those derivatives would be accounted for depending onthe use of the derivative and whether it qualifies for hedge accounting.  The Company uses derivative financialinstruments (interest rate swaps) to mitigate its interest rate risk on arelated financial instrument.  SFAS 133requires that changes in the fair value of derivatives that qualify as cashflow hedges be recognized in other comprehensive income while the ineffectiveportion of the derivative’s change in fair value be recognized immediately inearnings.  SFAS 133 requires thatunrealized gains and losses on that portion of derivatives not qualifying forhedge accounting be recognized currently in earnings.  The cumulative effect of a change in accounting principle due tothe adoption of SFAS 133 as of January 1, 2001 was $84 and was recorded inaccumulated other comprehensive income as a transition adjustment.  The Company recorded a net loss of $337 in othercomprehensive income for its interest rate swap contracts qualifying for hedgeaccounting for the six month period ended June 30, 2001.

**ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

             The following discussion andanalysis describes changes in the Company's financial condition sinceDecember 31, 2000. The analysis of results of operations compares thethree months and six months ended June 30, 2001 and July 1, 2000.

**RESULTS OF OPERATIONS**

**SECOND QUARTER, 2001 VERSUSSECOND QUARTER, 2000**

             Our net revenues for the secondquarter, 2001 were $61.7 million compared to $71.9 million for thesecond quarter of 2000, a decrease of $10.2 million, or 14.2%.** **Oursales to Deere & Company and Caterpillar Inc., were approximately60% and 51% of our revenues for the second quarters, 2001 and 2000,respectively.  Revenues from thesecustomers increased approximately 2% over the same period in 2000. Followinggeneral economic trends, sales to certain customers, including those related toconsumer products, fell from quarter-to-quarter.

             Our gross profits for the secondquarter, 2001 decreased by approximately $3.3 million, a decrease of31.9%, versus the same three months in 2000. The overall gross profitpercentage decreased to 11.3% for the second quarter of 2001 from 14.2% for thesecond quarter of 2000. The decrease in gross profit dollars and percentageresulted primarily from the decrease in revenues, and the associated lowercapacity utilization.

             Our selling and administrativeexpenses for the second quarter, 2001 amounted to $5.7 million, or 9.3% ofnet sales compared to $7.3 million, or 10.1% of net sales for the secondquarter of 2000.  The Company achieved reductions on variousexpenses administered on a company-wide basis.

             Our interest expense was approximately$2.4 million for the second quarter of 2001, compared to $2.7 million for the second quarter of 2000.  Interest expense is reduced because of acombination of lower debt and lower rates of interest.

             For the second quarter of 2001, noincome tax benefit was recognized on a pre-tax loss of $1.1 million. Theadditional net operating loss carryforward created in the second quarter of2001 was offset by an increase in the valuation allowance.  For the second quarter of 2000, we provided$210 thousand of income taxes on pre-tax income of $530 thousand.  The effective rate was approximately 40%.

**FIRST SIX MONTHS, 2001 VERSUS FIRST SIX MONTHS, 2000**

             Our net revenues for the first sixmonths of 2001 were $136.1 million compared to $145.0 million for thefirst six months of 2000, a decrease of $8.9 million, or 6.1%.  Our sales to Deere & Company andCaterpillar Inc., were approximately 58% and 50% of our revenues for thesecond quarters, 2001 and 2000, respectively. Revenues from these customers increased approximately 7% over the sameperiod in 2000. Following general economic trends, sales to certain customers,including those related to consumer products, fell during the comparable sixmonth periods. Customer demand has created cycles in the Company's revenues;revenues are generally stronger in the first six months of the year comparedwith the last six months of the year.

             Our gross profits for the first sixmonths of 2001 decreased by approximately $4.5 million, a decrease of21.2%, versus the same six months in 2000. The overall gross profit percentagedecreased to 12.1% for the first six months of 2001 from 14.5% for the firstsix months of 2000. The decrease in gross profit dollars and percentageresulted primarily from the decrease in revenues, and the associated lowercapacity utilization.

             Our selling and administrativeexpenses for the first six months of 2001 amounted to $12.7 million, or9.3% of net sales compared to $13.8 million, or 9.5% of net sales for thefirst six months of 2000.  The Company achievedreductions on various expenses administered on a company-wide basis.

             Our interest expense wasapproximately $5.0 million for the first six months of  2001, compared to $5.3 million for the firstsix months of 2000.  Interest expense isreduced because of a combination of lower debt and lower rates of interest.

             For the first six monthsof 2001, no income tax benefit was recognized on a pre-tax loss of $1.1million.  The additional net operatingloss carryforward created in the first six months of 2001 was offset by anincrease in the valuation allowance. For the first six months of 2000, we provided $870 thousand of incometaxes on pre-tax income of $2.2 million. The effective rate was approximately 40%.

**LIQUIDITY AND CAPITAL RESOURCES**

             Our consolidated working capital atJune 30, 2001 was $3.8 million compared to $12.9 million atDecember 31, 2000, a decrease in working capital of approximately$9.1 million.  The decrease inworking capital relates primarily to decreases in both accounts receivable andinventory, which provided funds for a decrease in revolving debt, which isclassified as long-term debt.

             The reductions in accountsreceivable and inventory reflect the effects of the national economicslowdown.  Some of our OEM customerssuch as manufacturers of farm equipment and consumer products have reducedproduction and their need for components. We expect that this slowdown will continue through at least the end ofthis year.  We anticipate that duringthe remainder of the year we will carefully monitor and manage our cashrequirements and pursue cost reduction initiatives.

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

             On May 28, 1998, we entered into acredit agreement with Harris, as Agent. The credit agreement, as last amendedin December, 2000, provides a credit facility with the followingcomponents: (i) a $23 million secured revolving credit facility;(ii) a $25 million secured term loan that matures in May, 2003; and(iii) a $30 million secured term loan that matures in May, 2005.  Both term loans fully amortize over theirrespective terms with quarterly payments. The interest rates on the loans varyfrom 1% to 3.75% above the lender's prime rate. We used the proceeds under thefacility to refinance the then existing indebtedness, to finance the 1998acquisitions, and for general corporate purposes.

             The amount of revolving creditavailability is calculated using a borrowing base of qualified accountsreceivable and inventory.  As of June30, 2001, we had additional availability of approximately $3.0 millionunder the Harris facility. We are paying this lender a fee of .125% per monthbased upon the amount of the revolving credit commitment and the balance of theterm loans.

             In connection with the Harrisfinancing, we have two fixed interest rate swap agreements with a commercialbank (the "counter party"). The first agreement has a notionalprincipal amount of $6.9 million and a termination date of May 31,2003. The second agreement has a notional principal amount of $14.2 millionand a termination date of June 30, 2003. The notional principal amountdeclines over the term of both agreements based upon a defined amortizationschedule. The counter party waived its unilateral right to cancel bothagreements as of June 30, 2001. As described below, these agreements arefor the purpose of limiting the effects of interest rate changes on half of theCompany's floating rate term debt.

             Our sources of funds to meet nearterm liquidity requirements for the businesses not acquired from Worthingtonwill be the cash flows from operations, the Harris line of credit, andmanagement of working capital to reflect current levels of operations. Webelieve that these sources, with attentive cash management and cost reductions,will be adequate through the end of the current fiscal year and beyond.

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

             On April 15, 1999, we enteredinto a financing agreement with GECC. The agreement contains a 4 1/2year secured revolving credit facility with maximum availability of$24 million and a $26 million secured term loan with a 4 1/2year term. The amount of availability is based upon a borrowing base ofqualified accounts receivable and inventory. Both of the facilities bearinterest at variable interest rates based on the prime rate, plus variablemargins. We also incur a fee based upon a certain percentage of the unusedrevolving credit facility. The term loan facility amortizes quarterlythroughout its term. We must also prepay certain amounts from the sale ofassets, the issuance of new equity capital and from "excess cashflow", as defined in the agreement.

             As of June 30, 2001, we hadadditional availability of $0.4 million under the GECC credit facility. Webelieve that the agreement with GECC, as amended in August, 2001, will providethe necessary term and revolving financing, and along with cash flows fromoperations, and attentive cost management and cost reductions, will provide thenecessary levels of liquidity for the operations acquired from Worthingtonthrough the end of the current fiscal year and beyond.

             As part of the financing for theWorthington acquisition, we issued 10,000 shares of redeemable preferred stock,which we must redeem in April, 2004 at $1,000 per share plus any dividendsaccrued since April 15, 1999. The $10 million face value preferredstock was recorded at its fair value of $4.25 million. We are accretingthe discount over a five year period using the effective yield method. Dividendsare payable in kind at the rate of 8% per annum. We believe that certainprovisions of the agreement with Worthington preclude the payment of dividends,and no dividends have been accrued since December 31, 1999. There are currentlegal proceedings related to certain Worthington matters as described in Form10-K filed with the Securities and Exchange Commission on April 2, 2001.

             On November 3, 2000, theCompany entered into an agreement with First Union Securities, Inc.("FUSI"), under which FUSI will act as the Company's exclusivefinancial advisor with respect to possible debt or equity financings orrecapitalizations. The Company is exploring potential financingalternatives.  A director of the Companyis a Managing Director at FUSI.

             We incurred $2.7 million of capitalexpenditures during the first six months of 2001, primarily for purchases ofmanufacturing equipment.

             We estimate that our capitalexpenditures in 2001 will total approximately $4.6 million of which$1.5 million will be for new production equipment and the remaining$3.1 million will be for normal replacement items.

**IMPACT OF RECENTLY ISSUEDACCOUNTING STANDARDS**

             InJuly 2001, the Financial Accounting Standards Board (FASB) issued Statement No.141, “Business Combinations”, and Statement No. 142, "Goodwill and OtherIntangible Assets”.  Statement No. 141requires that the purchase method of accounting be used for all businesscombinations initiated after June 30, 2001, as well as all purchase methodbusiness combinations completed after June 30, 2001.  Statement No. 142 requires that goodwill and intangible assetswith indefinite useful lives no longer be amortized, but, instead, tested forimpairment at least annually in accordance with the provisions of Statement142.  The Company is required to adoptthe provisions of Statement 141 immediately, and Statement 142 effectiveJanuary 1, 2002.

             As of the date of adoption, theCompany expects to have unamortized goodwill in the amount of approximately$8.6 million which will be subject to the transition provisions of Statements141 and 142.  Amortization expenserelated to goodwill was approximately $0.6 million and $0.3 million for theyear ended December 31, 2000 and the six months ended June 30, 2001,respectively.  Because of the extensiveeffort needed to comply with adopting the new rules, it is not practicable toreasonably estimate the impact of adopting these statements on the Company’sfinancial statements at the date of this report, including whether anytransitional impairment losses will be required to be recognized as thecumulative effect of a change in accounting principle.

**FORWARD LOOKING STATEMENTS**

             "Safe Harbor" StatementUnder The Private Securities Litigation Reform Act Of 1995: This Form 10-Qcontains "forward looking statements" within the meaning of Section27A of the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934, including statements containing the words "anticipates,""believes," "intends," "estimates,""expects," "projects" and similar words. The forwardlooking statements involve known and unknown risks, uncertainties and otherfactors that may cause our actual results to be materially different from anyfuture results expressed or implied by such forward looking statements. Such factorsinclude, among others, the following: the loss of certain significantcustomers; the cyclicality of our construction and agricultural sales; risksassociated with our acquisition strategy; general economic and businessconditions, both nationally and in the markets in which we operate or willoperate; competition; and other factors referenced in the Company's reports andregistration statements filed with the Securities and Exchange Commission.Given these uncertainties, prospective investors are cautioned not to placeundue reliance on such forward-looking statements. The forward-lookingstatements contained herein speak only of the Company's expectation as of thedate of this quarterly report. We disclaim any obligations to update any suchfactors or publicly announce the result of any revisions to any of the forwardlooking statements contained herein to reflect future events or developments.

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURE ABOUT MARKET RISK**

             The Company is exposed to interestrate changes primarily as a result of its line of credit and long-term debtused for maintaining liquidity, funding capital expenditures, and expanding ouroperations. The Company's interest rate risk management objective is to limitthe impact of interest rate changes on earnings and cash flow and to loweroverall borrowing costs. To achieve its objectives, the Company has enteredinto two separate financing agreements, as described more fully above, for termloans and revolving credit facilities. The Company has also entered into twointerest rate swap agreements, as required by its Harris financingarrangements, to limit the effect of increases in the interest rates on half ofits floating rate term debt. Under the swap agreements, which expireMay 31, 2003 to June 30, 2003, a LIBOR-equivalent interest ratecomponent of the interest rate is limited to 5.875% on half of the Company's$34.2 million term loans.

             The Company does not enter intointerest rate transactions for speculative purposes.

**PARTII – OTHER INFORMATION**

**ITEM 1.  LEGAL PROCEEDINGS**

Therehave been no significant changes in the status of the Worthington Industries,Inc. suit referenced in the Company's Form 10-K for 2000 filed with theSecurities and Exchange Commission on April 2, 2001.

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 Morton Industrial Group,  Inc., held its Annual Meeting on June 12, 2001 to:  1.Elect five directors to  serve for one year terms until the Annual Meeting of Shareholders in 2002.  2.Consider and act upon a  proposal to ratify the selection of KPMG, LLP as independent auditors of the  Company for 2001.
             The results of the shareholders’ votes on each of thesematters appear in the following tables.
Election of Directors:                 For Against  Abstained Total      William D. Morton4,772,976 15,357 ------ 4,788,333 Fred W. Broling4,783,682 4,651 ------ 4,788,333 Alfred R. Glancy III4,782,500 5,833 ------ 4,788,333 Mark W. Mealy4,783,587 4,746 ------ 4,788,333 Willem de Vogel4,783,278 5,055 ------ 4,788,333                   Ratification of Selection of Independent Auditor:                 For Against Abstained Total      KMPG LLP4,782,252 3,199 2,882 4,788,333          
Each share of Class A common stock hadone vote per share, and each share of Class B common stock had 3.23530 votesper share.

**ITEM 6. EXHIBITS AND REPORTS ONFORM 8–K**

(A)       Exhibits

11.        The computation can be determined fromthis report.

(B)        Reports on Form 8–K.

             None

**SIGNATURES**

             Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.
 MORTON INDUSTRIAL GROUP, INC. By:   /s/ THOMAS D. LAUERMAN    Thomas D. Lauerman*Vice  President of Finance*
Dated:August 14, 2001