<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 June 30, 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
(810) 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 July 21, 1995.
Common Stock, No Par Value 4,451,293
- -------------------------- ------------------
Class Number of Shares
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<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(unaudited) audited
----------- -------------
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 525,650 $ 1,697,713
Accounts Receivable (Net) 17,011,481 12,048,352
Inventories 34,742,853 23,340,907
Prepaid Expenses 319,489 296,944
----------- -----------
Total Current Assets 52,599,473 37,383,916
----------- -----------
Property and Equipment 31,421,618 28,833,901
Accumulated Depreciation (11,386,347) (10,070,253)
----------- -----------
Net Property and Equipment 20,035,271 18,763,648
----------- -----------
Other Assets 2,710,776 2,146,210
----------- -----------
Total Assets $75,345,520 $58,293,774
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Current Portion of
Long-Term Debt $ 1,875,213 $ 1,791,213
Accounts Payable 12,882,839 10,324,028
Accrued Liabilities 1,712,061 1,465,369
Federal Income Taxes 2,176,722 649,072
----------- -----------
Total Current Liabilities 18,646,835 14,229,682
----------- -----------
Deferred Income Taxes 1,062,916 1,065,000
----------- -----------
Long Term Debt - Less
Current Portion 28,119,107 18,039,869
----------- -----------
Other Liabilities
and Contingencies 5,701,688 5,599,514
----------- -----------
Stockholders' Equity 21,814,974 19,359,709
----------- -----------
Total Liabilities and
Stockholders' Equity $75,345,520 $58,293,774
----------- ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
MCCLAIN INDUSTRIES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales $21,171,595 $24,244,234 $63,155,669 $57,623,491
Cost of Sales 15,631,620 18,969,438 48,189,465 44,681,125
----------- ---------- ----------- -----------
Gross Profit 5,539,975 5,274,796 14,966,204 12,942,366
Selling, General
and Administrative
Expenses 3,267,021 2,988,051 9,161,814 8,188,686
----------- ----------- ----------- -----------
Operating Income 2,272,954 2,286,745 5,804,390 4,753,680
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Expense (631,578) (384,037) (1,543,099) (878,127)
Other Expense (152,275) (191,128) (563,133) (611,293)
Gain (loss) on
Sale of Asset - ( 26,935) - (23,423)
----------- ----------- ----------- -----------
(783,853) (602,100) (2,106,232) (1,512,843)
----------- ----------- ----------- -----------
Income before
Income taxes 1,489,101 1,684,645 3,698,158 3,240,837
Provision for
Income taxes 505,910 572,780 1,256,910 1,101,885
----------- ----------- ----------- -----------
Net Income
$ 983,191 $ 1,111,865 $ 2,441,248 $ 2,138,952
=========== =========== =========== ===========
Net Income Per Common
Equivalent Shares $ .21 $ .23 $ .53 $ .46
=========== =========== =========== ===========
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 4,625,284 4,637,224 4,625,284 4,637,224
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE> 4
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
JUNE 30,
-------------------
1 9 9 5 1 9 9 4
-------- --------
<S> <C> <C>
Net income $2,441,248 $2,138,952
---------- ---------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortizations 1,444,378 1,335,462
Deferred taxes ( 2,084) ( 2,084)
Common stock issued in lieu of cash 7,517 10,375
Loss on sale of property and equipment 0 23,422
Changes in operating assets which provided (used) cash:
Current assets excluding cash & equivalents (16,387,620) (8,529,659)
Other assets ( 655,624) 2,139,927
Accounts payable 2,558,811 2,996,545
Accrued expenses 246,692 16,174
Federal income taxes 1,527,650 897,868
Other liabilities 102,174 ( 236,523)
---------- ---------
TOTAL ADJUSTMENTS (11,158,106) (1,348,493)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (8,716,858) 790,459
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,587,717) (4,504,521)
---------- ---------
NET CASH USED BY INVESTING ACTIVITIES (2,587,717) (4,504,521)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net additions to notes payable 0 2,327,930
Principal additions (repayments) of long term debt 10,163,239 1,133,903
Sale of common stock 6,500 151,550
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,169,739 3,613,383
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,134,836) ( 100,679)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,660,486 466,204
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 525,650 $ 365,525
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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 nine month period ended June 30, 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 June 30, 1995 and September 30, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1995 September 30, 1994
------------- ------------------
<S> <C> <C>
Material and Supplies $11,117,053 $ 8,362,693
Work in Progress 5,150,200 7,115,786
Finished Goods 18,475,600 7,862,428
----------- -----------
$34,742,853 $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 year. The weighted average number of common shares was
increased by the number of shares issuable on the exercise of the stock options
when the market price of the common shares exceeded 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 purchased with the proceeds from
the exercise of the stock options; those purchases were assumed to have been
made at the average price of the common stock during the year.
4. Depreciation
For the nine months ended June 30, 1995 and 1994, depreciation
charges were $1,383,718 and $1,274,802, respectively.
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<PAGE> 6
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
5. Contingencies
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, that as of the date the subsidiary was acquired the
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 $4.5 million as of June 30,
1995. Cumulative payments resulting from product liability activity existing
at the acquisition date were approximately $3.0 million through the quarter
ended June 30, 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.
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. Management
estimates that the total costs of bringing its facilities into compliance will
not have a material effect on the Company's consolidated financial statements.
6 of 11
<PAGE> 7
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
6. Subsequent Event
On July 17, 1995 McClain Industries, Inc. purchased the stock of EPCO
Manufacturing Corporation, Inc,. EPCO is a manufacturer of vertical downstroke
and closed door horizontal bailing equipment used for processing of cardboard,
paper, plastic and non-ferous metals in the recycling industry. EPCO will be
operated as a wholly owned subsidiary of McClain. EPCO sales during the last
fiscal year ended March 1995 were approximately $2.6 million.
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
June 30, September 30,
1995 1994
------------ -------------
<S> <C> <C>
Working Capital $33,952,638 $23,154,234
Total Assets 75,345,520 58,293,774
Long-Term Debt 28,119,107 18,039,869
Stockholders' Investment 21,814,974 19,359,709
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,625,284 4,608,137
Current Ratio 2.82:1 2.63:1
Long-Term Debt to
Stockholders' Equity 1.29:1 .93:1
</TABLE>
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Three Months ended Nine Months ended
June 30 June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $21,171,595 $24,244,234 $63,155,669 $57,623,491
Net Income $ 983,191 $ 1,111,865 $ 2,441,248 $ 2,138,952
Net Earnings Per
Common and Common
Equivalent Share $ .21 $ .23 $ .53 $ .46
</TABLE>
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<PAGE> 8
MCCLAIN INDUSTRIES, INC.
DISCUSSION OF RESULTS OF OPERATIONS
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 Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
------------------ ---------------
<S> <C> <C> <C> <C>
Sales 100.00% 100.00% 100.00 100.00%
Cost of Sales 73.83 78.24 76.30 77.54
------ ------ ------ ------
Gross Profit 26.17 21.76 23.70 22.46
Selling, General &
Admin. Expense 15.43 12.32 14.51 14.21
------ ------ ------ ------
Operating Income 10.74 9.44 9.19 8.25
Other Expenses (3.70) (2.48) (3.33) (2.63)
------ ------ ------ ------
Income Before Income Tax 7.04 6.96 5.86 5.62
Provision for Income Taxes 2.39 2.36 1.99 1.91
------ ------ ------ ------
Net Income 4.65% 4.60% 3.87% 3.71%
====== ====== ====== ======
</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
June 30,
-------------------------------------
1995 1994
----------------- -----------------
amount % amount %
----------------- -----------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $ 4,938 23.33 $ 5,709 23.54
Containers 5,977 28.23 6,753 27.85
Compactors and Unitized
Compaction Systems 2,407 11.37 2,157 8.90
Garbage and Recycling
Truck Bodies 5,004 23.63 4,951 20.42
Transfer Trailers 788 3.72 3,030 12.50
Replacement Parts 1,113 5.26 794 3.28
Other Product Sales 945 4.46 850 3.51
------------------ ----------------
Total Net Sales $21,172 100.00% $24,244 100.00%
================== ================
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
For the Nine Months Ended
June 30,
-------------------------------------
1995 1994
----------------- -----------------
amount % amount %
----------------- -----------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $13,884 21.98 $13,572 23.55
Containers 16,175 25.61 13,131 22.79
Compactors and Unitized
Compaction Systems 6,699 10.61 6,948 12.06
Garbage and Recycling
Truck Bodies 16,436 26.02 12,448 21.60
Transfer Trailers 4,772 7.56 7,273 12.62
Replacement Parts 2,425 3.84 2,109 3.66
Other Product Sales 2,765 4.38 2,142 3.72
------------------ -----------------
Total Net Sales $63,156 100.00% $57,623 100.00%
================== =================
</TABLE>
8 of 11
<PAGE> 9
MCCLAIN INDUSTRIES, INC.
Quarter Ended June 30, 1995 compared to quarter Ended June 30, 1994
Net sales declined 12.67% to $21.2 million for the quarter ended June
30, 1995 (Quarter 1995) from $24.2 million for the quarter ended June 30, 1994
(Quarter 1994) primarily due to a decrease in unit sales of trailers and
intermodal containers. This is attributable to larger than normal shipments of
trailers and intermodal containers in June 1994 and a revamping of certain
areas of the sales force during the latter part of the second quarter 1995 and
into the third quarter 1995, which are expected to show positive results during
the current and succeeding quarters. Cost of sales as a percentage of net
sales was 73.83% for the Quarter 1995 compared to 78.24% for the Quarter 1994.
This decrease in cost of sales is due primarily to Galion Solid Waste achieving
higher gross profit margins during Quarter 1995. Selling, general, and
administrative expenses as a percentage of net sales increased to 15.43% for
Quarter 1995 compared to 12.32% for Quarter 1994 primarily due to increases in
selling and marketing expenses. Interest expense increased to 2.98% of net
sales for Quarter 1995 compared to 1.60% for Quarter 1994 due to increased
levels of borrowing and higher prevailing interest rates. Net income was
$983,191 or 4.64% of net sales for Quarter 1995 compared to $1,111,865 or 4.59%
of net sales for Quarter 1994.
Nine Months Ended June 30,1995 Compared to Nine Months Ended June 30, 1994
Net sales increased 9.60% to $63 million for the nine months ended
June 30, 1995 from $57 million for the nine months ended June 30, 1994
primarily due to increased unit sales, increases in selling prices of the
product lines and the Company's increased selling efforts. Roll off
containers, intermodal containers, and sludge containers accounted for 55.5% of
the net sales increase for such period, garbage and recycling truck bodies
sales accounted for 72.1% and sales of the Company's other products excluding
transfer trailers amounted to 17.6% of the net sales. Transfer trailer sales
declined 45.2% for the subject period. As stated in the quarterly information,
the Company is and has been involved in revamping certain areas of the sales
force, which is expected to show positive results during the current and
succeeding quarters. Cost of sales as a percentage of net sales decreased to
76.3% for the nine months ended June 30, 1995 compared to 77.5% for the nine
months ended June 30, 1994, primarily due to higher gross profit margins for
Galion Solid Waste. Selling, general, and administrative expenses as a
percentage of net sales increased to 14.5% for the nine months ended June 30,
1995 compared to 14.2% for the nine months ended June 30, 1994 due to increased
selling and marketing expenses. Interest expense increased to 2.4% of net
sales for the nine months ended June 30, 1995 compared to 1.5% for the nine
months ended June 30, 1994, primarily due to increased borrowings and higher
interest rates. Net income was $2.4 million or 3.87% of net sales for the nine
months ended June 30, 1995 of compared to $2.1 million or 3.71% of net sales
for the nine months ended June 30, 1994.
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<PAGE> 10
MCCLAIN INDUSTRIES, INC.
DISCUSSION OF FINANCIAL CONDITION
The Company had working capital of approximately $34 million at June
30, 1995 compared to $23 million at June 30, 1994. The ratio of current assets
to current liabilities was 2.82 to 1 at June 30, 1995 compared to 2.63 to 1 at
June 30, 1994. The Company's cash and cash equivalents totaled $525,650. Cash
flows utilized by operations was $8.8 million for the nine months ended June
30, 1995, primarily as a result of increased purchases of raw materials
inventory and higher levels of finished goods inventory. Cash flows from
investing activities utilized $2.6 million, primarily as a result of machinery
and equipment purchases. The expenditures for inventories and machinery and
equipment purchases were financed by increased borrowings.
Uncommitted revolving lines of credit of $5.8 million were available
at June 30, 1995.
Management believes that the Company has had and continues to have
sufficient working capital and capital resources to meet its short-term
obligations and anticipated long-term requirements.
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<PAGE> 11
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 authorizd.
McCLAIN INDUSTRIES, INC.
Date: July 21, 1995 By: /s/ Edward J. Zabinski
-------------------------------
Edward J. Zabinski, Treasurer
Date: July 21, 1995 By: /s/ Kenneth D. McClain
-------------------------------
Kenneth D. McClain, President
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 525,650
<SECURITIES> 0
<RECEIVABLES> 17,011,481
<ALLOWANCES> 0
<INVENTORY> 34,742,853
<CURRENT-ASSETS> 52,599,473
<PP&E> 31,421,618
<DEPRECIATION> 11,386,347
<TOTAL-ASSETS> 75,345,520
<CURRENT-LIABILITIES> 18,646,835
<BONDS> 0
<COMMON> 4,064,053
0
0
<OTHER-SE> 17,750,921
<TOTAL-LIABILITY-AND-EQUITY> 75,345,520
<SALES> 63,155,669
<TOTAL-REVENUES> 63,155,669
<CGS> 48,189,465
<TOTAL-COSTS> 48,189,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,543,099
<INCOME-PRETAX> 3,698,158
<INCOME-TAX> 1,256,910
<INCOME-CONTINUING> 2,441,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,441,248
<EPS-PRIMARY> .53
<EPS-DILUTED> 0
</TABLE>
