<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________to__________
Commission File No. 0-7770
MCCLAIN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1867649
State of Incorporation I.R.S. Employer I.D. No.
6200 Elmridge Road
Sterling Heights, Michigan 48310
(313) 264-3611
(Address of principal executive offices and telephone number)
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. Yes X . No___.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of May 8, 1995.
Common Stock, No Par Value 4,450,066
Class Number of Shares
1 of 12
<PAGE> 2
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part 1
Item 1 - Financial Information
Condensed Consolidated Balance Sheets
March 31, 1995 and September 30, 1994 2
Condensed Statments of Consolidated Operations
Three months and Six months ended March 31,
1995 and 1994 3
Condensed Consolidated Statements of Cash Flows
Six months ended March 31, 1995 and 1994 4
Notes to Condensed Consolidated
Finanical Statements 5 - 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1995 1994
(unaudited) *
----------- -------------
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and Cash Equivalents $ 1,660,484 $ 1,697,713
Accounts Receivable (Net) 11,856,741 12,048,352
Inventories 32,315,822 23,340,907
Prepaid Expenses 889,690 296,944
----------- -----------
Total Current Assets 46,722,737 37,383,916
----------- -----------
Property and Equipment 30,167,334 28,833,901
Accumulated Depreciation (10,906,182) (10,070,253)
----------- -----------
Net Property and Equipment 19,261,152 18,763,648
----------- -----------
Other Assets 2,166,148 2,146,210
----------- -----------
Total Assets $68,150,037 $58,293,774
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Current Portion of Long-Term
Debt $ 1,791,213 $ 1,791,213
Accounts Payable 10,954,264 10,324,028
Accrued Liabilities 1,749,449 1,465,369
Federal Income Tax 1,667,403 649,072
----------- -----------
Total Current Liabilities 16,162,329 14,229,682
----------- -----------
Deferred Income Taxes 1,062,916 1,065,000
----------- -----------
Long Term Debt - Less
Current Portion 24,325,216 18,039,869
----------- -----------
Other Liabilities
and Contingencies 5,769,151 5,599,514
----------- -----------
Stockholders' Equity 20,830,425 19,359,709
----------- -----------
Total Liabilities and
Stockholders' equity $68,150,037 $58,293,774
=========== ===========
</TABLE>
See notes to consolidated financial statements.
* Derived from audited financial statements.
2 of 12
<PAGE> 4
MCCLAIN INDUSTRIES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
------------------ ----------------
<S> <C> <C> <C> <C>
Net Sales $21,382,043 $18,832,574 $41,984,074 $33,379,257
Cost of Sales 16,542,603 14,546,479 32,557,845 25,711,687
----------- ----------- ----------- -----------
Gross Profit 4,839,440 4,286,095 9,426,229 7,667,570
Selling, General
and Administrative
Expenses 3,033,963 2,742,896 5,894,793 5,200,635
----------- ----------- ----------- -----------
Operating Income 1,805,477 1,543,199 3,531,436 2,466,935
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Expense (494,616) (254,882) (911,521) (494,090)
Other Expense (149,697) (300,994) (410,858) (420,165)
Gain on Sale of
Asset -- 3,512 -- 3,512
------------ ------------ ------------ ------------
(644,313) (552,364) (1,322,379) (910,743)
------------ ------------ ------------ -----------
Income before
Income taxes 1,161,164 990,835 2,209,057 1,556,192
Provision for
Income taxes 395,000 344,205 751,000 529,105
----------- ----------- ----------- -----------
Net Income $ 766,164 $ 646,630 $ 1,458,057 $ 1,027,087
=========== =========== =========== ===========
Net Income per
Common and Common
Equivalent Shares $ .17 $ .15 $ .32 $ .23
=========== =========== =========== ===========
Weighted Average
Number of Common and
Common Equivalent
Shares
Outanding 4,619,193 4,417,577 4,619,193 4,417,577
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3 of 12
<PAGE> 5
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
----------------------
1 9 9 5 1 9 9 4
-------- --------
<S> <C> <C>
Net income $1,458,057 1,027,087
---------- ---------
Adjustments to reconcile net income to net
cash (used) by operating activities:
Depreciation and amortization 876,369 840,297
Deferred Income Taxes ( 2,084) ( 2,084)
Common stock issued in lieu of cash -- 4,936
(Gain) on sale of property and equipment -- ( 3,512)
Changes in operating assets which provided
(used) cash:
Current assets excluding cash & cash
equivalents (9,376,050) (8,698,408)
Other assets (52,963) 565,954
Accounts payable 630,236 4,711,389
Accrued liabilities 284,080 28,501
Federal income tax 1,018,331 376,619
Other liabilities 169,637 ( 202,846)
---------- ---------
TOTAL ADJUSTMENTS (6,452,444) (2,379,154)
---------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES (4,994,387) (1,352,067)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,333,433) (2,139,544)
---------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,333,433) (2,139,544)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net additions (reductions) to notes payable 0 2,435,062
Principal additions (repayments) of long term debt 6,285,347 718,084
Sale (repurchase) of common stock 5,244 22,261
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,290,591 3,175,407
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ( 37,229) ( 316,204)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,697,713 466,204
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,660,484 $ 150,000
========== =========
</TABLE>
4 of 12
<PAGE> 6
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of McClain
Industries, Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, such Statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for
the three month and six month periods ending March 31, 1995, are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1995. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended September 30, 1994.
2. Inventories
Inventories at March 31, 1995 and September 30, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31,1995 September 30,1994
<S> <C> <C>
Material and Supplies $10,870,720 $ 8,362,693
Work in Process 4,260,150 7,115,786
Finished Goods 17,184,952 7,862,428
----------- -----------
$32,315,822 $23,340,907
=========== ===========
</TABLE>
3. Earnings per Common Share and Common Equivalent Share:
On March 30, 1995, a four-for-three split of the Company's Common Stock was
effected through distribution of one additional share for every three shares
already issued. All applicable share and per share data have been restated to
give retroactive effect to the stock split.
Earnings per common share and common equivalent share were calculated
using the weighted average number of common shares and common stock equivalents
outstanding during the period. The weighted average number of common shares
actually outstanding was increased by the number of shares issuable on the
exercise of the dilutive stock options when the market price of the common
shares exceeds the option price granted. This increase in the number of common
shares was reduced by the number of common shares that are assumed to have been
repurchased with the proceeds from the exercise of the stock options; those
repurchases were assumed to have been made at the average price of the common
stock during the period.
4. Depreciation
For the six months ended March 31, 1995 and 1994, depreciation charges
were $835,929 and $799,857, respectively.
5 of 12
<PAGE> 7
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995
5. Contingencies
Product Liability
A subsidiary of the Company acquired in July 1992, assumed certain costs
relative to product liability. Currently, the subsidiary is involved in
various product liability cases which have arisen as a result of alleged
product failure. Management, in consultation with legal counsel has, among
other things, analyzed existing claims and lawsuits, reviewed historical loss
results, and reviewed the incidence and severity of injuries in order to
estimate costs relative to product liability. While an exact amount cannot be
identified due to many variables and assumptions and the outcome of claims is
uncertain and difficult to predict, management after consulting with legal
counsel, has estimated remaining costs to the subsidiary on product liability
assumed will most likely range from $7.5 million to $12 million.
The reserve for product liability was $4.6 million as of March 31, 1995.
Cumulative payments resulting from product liability activity existing at the
acquisition date were approximately $2.9 million through the quarter ended
March 31, 1995.
The subsidiary intends to vigorously defend any lawsuits which may arise as a
result of alleged product failure.
Environmental Matters
The Company's operations are subject to extensive federal, state and local
regulation under environmental laws and regulations, and such regulations are
increasing.
Inherent in manufacturing operations and owning real estate is the risk of
environmental liabilities as a result of both current and past operations,
which cannot be predicted with certainty. The Company has incurred and will
continue to incur costs, on an ongoing basis, associated with environmental
regulatory compliance. Inasmuch as the Company does not currently maintain
environmental impairment insurance, the Company may face claims of significant
remediation costs (for which the Company would be uninsured and in connection
with which the Company may be unable to obtain reimbursement from other
responsible parties) in connection with contamination which may be detected on
its properties or as a result of its operations in the future.
(continued)
6 of 12
<PAGE> 8
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995
5. Contingencies - (continued)
The Company has determined that several of its operating sites are not in
full compliance with certain hazardous waste management reporting and other
related requirements. The Company has begun to implement procedures and take
requisite actions to remedy as soon as practicable all identified deficiencies
so that its facilities will comply with all applicable environmental laws and
regulations in all material respects. The Company estimates that the total
costs of bringing its facilities into compliance will not have a material
effect on the Company's consolidated financial statements.
7 of 12
<PAGE> 9
MCCLAIN INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
The following discussion should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, appearing
elsewhere in this report.
Selected financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
(unaudited)
As of As of
March 31, September 30,
1995 1994
----------- -------------
<S> <C> <C>
Working Capital $30,560,408 $23,154,234
Total Assets 68,150,037 58,293,774
Long-Term Debt 24,325,216 18,039,869
Stockholders' Investment 20,830,425 19,359,709
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,619,193 4,608,137
Current Ratio 2.89:1 2.63:1
Long-Term Debt to Stockholders'
Equity 1.17:1 .93:1
</TABLE>
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Three Months ended Six Months ended
March 31 March 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $21,382,043 $18,832,574 $41,984,074 $33,379,257
Net Income $ 766,164 $ 646,630 $ 1,458,057 $ 1,027,087
Net Earnings Per
Common and Common
Equivalent Share $ .17 $ .15 $ .32 $ .23
</TABLE>
8 of 12
<PAGE> 10
MCCLAIN INDUSTRIES, INC.
The following table presents, as a percentage of net sales certain
selected financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
------------------ ----------------
<S> <C> <C> <C> <C>
Sales 100.00% 100.00% 100.00 100.00%
Cost of Sales 77.37 77.24 77.55 77.03
------ ------ ------ ------
Gross Profit 22.63 22.76 22.45 22.97
Selling, General &
Admin. Expense 14.19 14.56 14.04 15.58
------ ------ ------ ------
Operating Income 8.44 8.20 8.41 7.39
Other Expenses (3.01) (2.93) (3.15) (2.73)
------ ------ ------ ------
Income Before Income Tax 5.43 5.27 5.26 4.66
Provision for Income Taxes 1.85 1.83 1.79 1.59
------ ------ ------ ------
Net Income 3.58% 3.44% 3.47% 3.07%
====== ====== ====== ======
</TABLE>
The following table presents the net sales of the Company by major
product line for the periods indicated (in thousands)
<TABLE>
<CAPTION>
(Unaudited)
For the Three Months Ended
March 31,
1995 1994
------------- ------------------
amount % amount %
-------------- ------------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $ 5,252 24.56 $ 4,937 26.22
Containers 4,696 21.96 3,843 20.41
Compactors and Unitized
Compaction Systems 2,412 11.28 2,297 12.19
Garbage and Recycling
Truck Bodies 6,544 30.60 4,102 21.78
Transfer Trailers 975 4.56 2,204 11.70
Replacement Parts 494 2.32 772 4.09
Other Product Sales 1,009 4.72 678 3.61
---------------- ----------------
Total Net Sales $21,382 100.00% $18,833 100.00%
================ ================
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
For the Six Months Ended
March 31,
-------------------------
1995 1994
----------------- --------------------
amount % amount %
----------------- --------------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $ 8,946 21.31 $ 7,863 23.56
Containers 10,198 24.29 6,378 19.11
Compactors and Unitized
Compaction Systems 4,292 10.22 4,791 14.35
Garbage and Recycling
Truck Bodies 11,431 27.23 7,498 22.46
Transfer Trailers 3,984 9.49 4,241 12.70
Replacement Parts 1,312 3.12 1,315 3.93
Other Product Sales 1,821 4.34 1,293 3.89
----------------- ----------------
Total Net Sales $41,984 100.00% $33,379 100.00%
================= ================
</TABLE>
9 of 12
<PAGE> 11
MCCLAIN INDUSTRIES, INC.
Quarter ended March 31, 1995 compared to quarter ended March 31, 1994
Net sales increased 13.54% to $21.4 million for the quarter ended March
31, 1995 (Quarter 1995) from $18.8 million for the quarter ended March 31, 1994
(Quarter 1994) primarily due to increased unit sales, increases in selling
prices of certain product lines and the Company's increased selling efforts.
Garbage and recycling truck bodies accounted for 95.81% of the sales increase
for such period, roll off containers, intermodal containers, and sludge
container sales accounted for 33.48%, dump truck body sales accounted for
12.36% and sales of unitized compaction systems and replacement parts accounted
for 6.57% of the sales increase. Sales of transfer trailers declined 48.22%
during this period. For the Quarter 1995, sales of garbage and recycling truck
bodies amounted to $6.5 million or 30.60% of the net sales, sales of roll off
containers, intermodal containers, and sludge containers amounted to $4.7
million or 21.96% of net sales and sales of the Company's other products
amounted to $10.2 million or 47.44% of the net sales. Cost of sales as a
percentage of net sales was 77.37% for the Quarter 1995 compared to 77.24% for
the Quarter 1994. This increase in cost of sales is due primarily to increase
unit sales of Galion Solid Waste product line. Selling, general and
administrative expenses as a percentage of net sales declined to 14.19% for the
Quarter 1995 primarily due to their being more fixed in nature. Interest
expense increased to 2.31% of net sales for the Quarter 1995 compared to 1.45%
of net sales for the Quarter 1994, primarily due to increased borrowings and
higher prevailing interest rates. Net income was $766,164 for the Quarter 1995
compared to $646,630 for the Quarter 1994 primarily due to increased sales
volume and the Company's continual effort on cost controls.
Six months ended March 31, 1995 compared to six months ended March 31, 1994
Net sales increased 25.78% to $42.0 million for the six months ended
March 31, 1995 from $33.4 million for the six months ended March 31, 1994
primarily due to increased unit sales, increases in selling prices of the
product lines and the Company's increased selling effort. Roll off containers,
intermodal containers, and sludge containers accounted for 44.40% of the sales
increase for such period, garbage and recycling truck bodies sales accounted
for 45.70% and sales of the Company's other products excluding transfer
trailers amounted to 12.90% of the net sales. Transfer trailer sales declined
3.00% for subject period. In order to foster trailer sales the Company has
restructured its sales force. Cost of sales as a percentage of net sales
increased to 77.55% for the six months ended March 31, 1995 compared to 77.03%
for the six months ended March 31, 1994, primarily due to increased unit sales
of Galion Solid Waste product line and their historically lower gross profit
margins. Selling, general and administrative expenses as a percentage of net
sales declined to 14.04% for the six months ended March 31, 1995 compared to
15.58% for the six months ended March 31, 1994. Interest expense increased to
2.17% of the net sales for the six months ended March 31, 1995 compared to
1.48% for the six months ended March 31, 1994, primarily due to increased
borrowings and higher interest rates. Net income was $1,458,057 for the six
months ended March 31, 1995 compared to $1,027,087 for the six months ended
March 31, 1994, primarily due to increased sales volume, increases in selling
prices, and the Company's continual effort on cost controls.
10 of 12
<PAGE> 12
MCCLAIN INDUSTRIES, INC.
DISCUSSION FINANCIAL CONDITION
The Company had working capital of approximately $30.6 million at March
31, 1995 compared to $23.1 million at September 30, 1994. The ratio of current
assets to current liabilities was 2.89 to 1 at March 31, 1995 compared to 2.63
to 1 at September 30, 1994. The Company's cash and cash equivalents totaled
$1,660,484 at March 31, 1995. Cash flows utilized by operations was $5.0
million for the six months ended March 31, 1995, primarily as a result of
increased purchases of raw materials inventory and higher levels of finished
goods inventory. During this period investing activities utilized $1.3
million, primarily as a result of machinery and equipment purchases. The
expenditures for inventories and machinery and equipment purchases were
financed by increased borrowings.
In February 1995 the Company entered into a term loan agreement with
Standard Federal Bank which refinanced two promissory notes (in the combined
amount of $1.4 million) and provided additional working capital in the amount
of $600,000. The note bears interest at prime plus 1/4% per annum over a five
year term and fifteen year amortization and is secured by a mortgage on certain
of the Company's properties.
In February 1995 the Company entered into an equipment financing term
line with Standard Federal Bank in the amount of $1.8 million. The promissory
notes bear interest at prime rate, matures in seven years and are secured by
the related equipment.
In March 1995 the Company entered into a new loan agreement with
Standard Federal Bank that increased its revolving facility by $6 million.
Borrowing limitations, interest rates and other terms are substantially the
same as the existing revolving facility.
Uncommitted revolving lines of credit of $3.3 million were available at
March 31, 1995.
11 of 12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
McCLAIN INDUSTRIES, INC.
Date: MAY 8, 1995 By: /s/ Edward J. Zabinski
----------------------
Edward J. Zabinski, Treasurer
Date: MAY 8, 1995 By: /s/ Kenneth D. McClain
----------------------
Kenneth D. McClain, President
12 of 12
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 1,660,484
<SECURITIES> 0
<RECEIVABLES> 11,856,741
<ALLOWANCES> 0
<INVENTORY> 32,315,822
<CURRENT-ASSETS> 46,722,737
<PP&E> 30,167,334
<DEPRECIATION> 10,906,182
<TOTAL-ASSETS> 68,150,037
<CURRENT-LIABILITIES> 16,162,329
<BONDS> 0
<COMMON> 4,055,279
0
0
<OTHER-SE> 16,775,146
<TOTAL-LIABILITY-AND-EQUITY> 68,150,037
<SALES> 41,984,074
<TOTAL-REVENUES> 41,984,074
<CGS> 32,557,845
<TOTAL-COSTS> 32,557,845
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 911,521
<INCOME-PRETAX> 2,209,057
<INCOME-TAX> 751,000
<INCOME-CONTINUING> 1,458,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,458,057
<EPS-PRIMARY> .32
<EPS-DILUTED> 0
</TABLE>
