##### 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 April 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 ofApril 25, 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  ITEM 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. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURES302 Certification302 Certification1350 CertificationFifth Amendment to Second Amended and Restated Credit AgreementThird Amendmen to Amended and Restated Note and Warrant Purchase Agreement    Table of Contents  
 ITEM 1. FINANCIAL STATEMENTS.
 MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets
April 1, 2006 and December 31, 2005
 (Dollars in thousands, except per share data)
 April 1, 2006
    
    
    December 31, 2005(Unaudited)AssetsCurrent assets:Trade accounts receivable, less allowance for doubtful accounts
of $130 in 2006 and $192 in 2005
    
    $
    18,588
    
    
    
    12,714Unbilled receivables
    
    
    604
    
    
    
    801Inventories
    
    
    21,278
    
    
    
    20,631Prepaid expenses and other current assets
    
    
    1,493
    
    
    
    824Deferred income taxes
    
    
    2,583
    
    
    
    2,583Total current assets
    
    
    44,546
    
    
    
    37,553Property, plant, and equipment, net
    
    
    24,965
    
    
    
    23,432Intangible assets, at cost, less accumulated amortization
    
    
    556
    
    
    
    570Deferred income taxes
    
    
    10,617
    
    
    
    10,617Other assets
    
    
    1,499
    
    
    
    1,622$
    82,183
    
    
    
    73,794Liabilities and Stockholders EquityCurrent liabilities:Outstanding checks in excess of bank balance
    
    $
    2,045
    
    
    
    3,050Current installments of long-term debt
    
    
    10,225
    
    
    
    7,139Accounts payable
    
    
    22,875
    
    
    
    19,295Accrued payroll and payroll taxes
    
    
    3,054
    
    
    
    2,226Accrued expenses
    
    
    2,371
    
    
    
    2,416Income taxes payable
    
    
    791
    
    
    
    499Redeemable preferred stock
    
    
    350
    
    
    
    500Total current liabilities
    
    
    41,711
    
    
    
    35,125Long-term debt, excluding current installments
    
    
    31,197
    
    
    
    31,764Other liabilities
    
    
    250
    
    
    
    250Redeemable preferred stock
    
    
    1,984
    
    
    
    2,834Warrants payable
    
    
    2,897
    
    
    
    2,872Total liabilities
    
    
    78,039
    
    
    
    72,845Stockholders equity:Class A common stock  $0.01 par value. Authorized 20,000,000 shares;
issued and outstanding 4,880,878 in 2006 and 2005
    
    
    49
    
    
    
    49Class B common stock  $0.01 par value. Authorized 200,000 shares;
issued and outstanding 100,000 in 2006 and 2005
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    20,947
    
    
    
    20,947Accumulated deficit
    
    
    (16,853
    )
    
    
    (20,048
    )Total stockholders equity
    
    
    4,144
    
    
    
    949$
    82,183
    
    
    
    73,794
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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Operations
For the Three Months Ended April 1, 2006 and April 2, 2005
(Dollars in thousands, except per share data)
(Unaudited)
 Three Months EndedApril 1, 2006
    
    
    April 2, 2005Net sales
    
    $
    53,599
    
    
    
    54,123Cost of sales
    
    
    45,477
    
    
    
    46,989Gross profit
    
    
    8,122
    
    
    
    7,134Operating expenses:Selling expenses
    
    
    794
    
    
    
    783Administrative expenses
    
    
    3,377
    
    
    
    2,756Total operating expenses
    
    
    4,171
    
    
    
    3,539Operating income
    
    
    3,951
    
    
    
    3,595Other income (expense):Interest expense
    
    
    (1,331
    )
    
    
    (1,284
    )Gain on redemption of redeemable preferred stock
    
    
    850
    
    
    
    850Other
    
    
    
    
    
    
    40Total other expense
    
    
    (481
    )
    
    
    (394
    )Earnings before income taxes
    
    
    3,470
    
    
    
    3,201Income taxes
    
    
    275
    
    
    
    200Net earnings
    
    $
    3,195
    
    
    
    3,001Earnings per share of common stock  basic:
    
    $
    0.64
    
    
    
    0.62Earnings per share of common stock  diluted:
    
    $
    0.54
    
    
    
    0.50
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MORTON
INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows
For The Three Months Ended April 1, 2006 and April 2, 2005
(Dollars in thousands)
 (Unaudited)
 Three Months EndedApril 1, 2006
    
    
    April 2, 2005Cash flows from operating activities:Net earnings
    
    $
    3,195
    
    
    
    3,001Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:Depreciation and amortization of plant and equipment and intangible assets
    
    
    1,327
    
    
    
    1,519Other amortization and accretion
    
    
    339
    
    
    
    380Provision for bad debts
    
    
    15
    
    
    
    40Unrealized gain on derivative instruments
    
    
    (34
    )
    
    
    (156
    )Gain on redemption of preferred stock
    
    
    (850
    )
    
    
    (850
    )Gain on sale of plant and equipment
    
    
    (5
    )
    
    
    Changes in operating assets and liabilities:Increase in trade accounts receivable
    
    
    (5,889
    )
    
    
    (6,925
    )Decrease (increase) in unbilled receivables
    
    
    197
    
    
    
    (1,964
    )Increase in inventories
    
    
    (647
    )
    
    
    (424
    )Increase in prepaid expenses and other assets
    
    
    (660
    )
    
    
    (367
    )Increase in accounts payable
    
    
    3,580
    
    
    
    4,874Increase in income taxes payable
    
    
    292
    
    
    
    140Increase in accrued expenses and other liabilities
    
    
    817
    
    
    
    115Net cash provided by (used in) operating activities
    
    
    1,677
    
    
    
    (617
    )Cash flows from investing activities:Capital expenditures
    
    
    (3,050
    )
    
    
    (1,144
    )Proceeds from sale of property and equipment
    
    
    209
    
    
    
    20Payment received on note receivable for sale of business
    
    
    
    
    
    
    101Net cash used in investing activities
    
    
    (2,841
    )
    
    
    (1,023
    )Cash flows from financing activities:Increase (decrease) in checks issued in excess of bank balance
    
    
    (1,005
    )
    
    
    259Net borrowings on revolving debt
    
    
    3,200
    
    
    
    2,250Principal payments on long-term debt and capital leases
    
    
    (881
    )
    
    
    (703
    )Redemption of preferred stock
    
    
    (150
    )
    
    
    (150
    )Proceeds from options exercised
    
    
    
    
    
    
    22Debt issuance costs
    
    
    
    
    
    
    (38
    )Net cash provided by financing activities
    
    
    1,164
    
    
    
    1,640Net 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
    
    $
    934
    
    
    
    1,018Income taxes
    
    
    90
    
    
    
    61
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MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
 Condensed Consolidated Statement of Stockholders Equity (Deficit)
For the Three Months Ended April 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,195
    
    
    
    3,195Balance, April 1, 2006
    
    
    4,880,878
    
    
    $
    49
    
    
    
    100,000
    
    
    $
    1
    
    
    $
    20,947
    
    
    $
    (16,853
    )
    
    $
    4,144
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MORTON
INDUSTRIAL GROUP, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the Three Months Ended April 1, 2006 and April 2, 2005
(Unaudited)
 (1) Merger Agreement Disclosure
   (2) Nature of Business
  (3) Interim Financial Data
  6




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(4) Inventories
  April 1,
    
    
    December 31,2006
    
    
    2005Finished goods
    
    $
    9,226
    
    
    $
    9,025Work-in-process
    
    
    4,390
    
    
    
    4,082Raw materials
    
    
    7,662
    
    
    
    7,524$
    21,278
    
    
    $
    20,631
 (5) Earnings Per Share
  Quarter Ended April 1, 2006
    
    
    Quarter Ended April 2, 2005Earnings
    
    
    Shares
    
    
    Per Share
    
    
    Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic
    
    $
    3,195,000
    
    
    
    4,980,878
    
    
    $
    0.64
    
    
    $
    3,001,000
    
    
    
    4,865,968
    
    
    $
    0.62Effect of dilutive
securities, stock
options and
warrants
    
    
    
    
    
    
    905,534
    
    
    
    (0.10
    )
    
    
    
    
    
    
    1,078,896
    
    
    
    (0.12
    )Diluted
    
    $
    3,195,000
    
    
    
    5,886,412
    
    
    $
    0.54
    
    
    $
    3,001,000
    
    
    
    5,944,864
    
    
    $
    0.50
 (6) Segment Reporting
  (7) Debt and Warrants
 March 26, 2004 Refinancing and Subsequent Amendments
   7




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8




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(8) Stock Option Plan
  (9) Impact of Recently Issued Accounting Standards
   (10) Redeemable Preferred Stock
   (11) Unbilled Receivables
  9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  GENERAL
         10




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RESULTS OF OPERATIONS
 First quarter, 2006 versus first quarter, 2005
        LIQUIDITY AND CAPITAL RESOURCES
   11




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March 26, 2004 Refinancing and Subsequent Amendments
          12




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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 indebtednessTerm loan
    
    
    15,367
    
    
    
    9,790
    
    
    
    5,577
    
    
    
    
    
    
    
    Revolving line of credit
    
    
    12,900
    
    
    
    
    
    
    
    12,900
    
    
    
    
    
    
    
    Senior subordinated debt
    
    
    12,884
    
    
    
    
    
    
    
    12,884
    
    
    
    Other debt obligations
    
    
    977
    
    
    
    328
    
    
    
    649
    
    
    
    
    
    
    
    Interest
    
    
    11,000
    
    
    
    3,600
    
    
    
    7,400
    
    
    
    
    
    
    
    Operating leases
    
    
    24,578
    
    
    
    7,263
    
    
    
    14,504
    
    
    
    2,811Preferred stock redemption
    
    
    350
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    78,056
    
    
    
    21,331
    
    
    
    53,914
    
    
    
    2,811
    
    
    
    
  13




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FORWARD LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Interest Rate Risk
       14




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Steel Commodity Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
  Changes in internal controls.
  15




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
        16




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SIGNATURES
   
   17