<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 December 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
(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 February 10, 1995.
Common Stock, No Par Value 4,681,725
- -------------------------- ----------------
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>
DECEMBER 31, SEPTEMBER 30,
1995 1995
(unaudited)
----------- ------------
ASSETS
------
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and Cash Equivalents $ 1,100,007 $ 1,173,370
Accounts Receivable (Net) 14,298,607 15,590,278
Inventories 32,464,064 31,229,399
Prepaid Expenses 340,416 176,075
----------- -----------
Total Current Assets 48,203,094 48,169,122
----------- -----------
Property and Equipment 33,456,984 33,078,135
Accumulated Depreciation (12,438,306) (11,894,922)
----------- -----------
Net Property and Equipment 21,018,678 21,183,213
----------- -----------
Other Assets 5,375,993 4,546,862
----------- -----------
Total Assets $74,597,765 $73,899,197
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Current Portion of Long-Term
Debt $ 2,179,449 $ 2,179,449
Accounts Payable 7,919,886 9,190,309
Accrued Liabilities 2,057,520 2,331,809
Federal Income Taxes 286,402 598,999
----------- -----------
Total Current Liabilities 12,443,257 14,300,566
----------- -----------
Deferred Income Taxes 1,440,000 1,440,000
----------- -----------
Long Term Debt - Less
Current Portion 33,382,995 31,170,287
----------- -----------
Other Liabilities 4,493,323 4,147,070
----------- -----------
Stockholders' Equity 22,838,190 22,841,274
----------- -----------
Total Liabilities and
Stockholders' equity $74,597,765 $73,899,197
=========== ===========
</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
December 31,
1995 1994
--------------------------
<S> <C> <C>
Net Sales $16,394,682 $20,602,031
Cost of Sales 12,957,066 16,015,242
----------- -----------
Gross Profit 3,437,616 4,586,789
Selling General
and Administrative
Expenses 3,258,575 2,860,830
----------- -----------
Operating Income 179,041 1,725,959
----------- -----------
Other Income (Expense)
Interest Expense (663,850) (416,905)
Other Income (Expense) 80,780 (261,161)
----------- -----------
Total Other Income (Expense) (583,070) (678,066)
----------- -----------
Income (Loss) Before Income Taxes (404,029) 1,047,893
(Provision) Credit for
Income Taxes 137,000 (356,000)
----------- -----------
Net Income (Loss) $ (267,029) $ 691,893
=========== ===========
Net income (Loss) per common
and common equivalent shares $ (.06) $ .15
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding 4,584,369 4,610,733
=========== ===========
</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>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1 9 9 5 1 9 9 4
-------- --------
<S> <C> <C>
Net income (loss) $(267,029) $ 691,893
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities
Depreciation and amortization 584,195 419,363
Changes in assets and liabilities which
provided (used) cash
Current assets excluding cash & equivalents (107,335) (4,393,623)
Other assets (851,827) 355,679
Accounts payable (1,270,423) 931,078
Accrued expenses (274,289) (84,226)
Federal income taxes (312,597) 569,263
Other liabilities 346,253 238,987
---------- ---------
TOTAL ADJUSTMENTS (1,886,023) (1,963,479)
---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (2,153,052) (1,271,586)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (396,964) (948,734)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (396,964) (948,734)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal additions of long term debt 2,662,958 1,804,089
Principal reductions of long term debt (450,250) (358,619)
Sale of common stock 263,945 0
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,476,653 1,445,470
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (73,363) (774,850)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,173,370 1,697,713
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,100,007 $ 922,863
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 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 period ending December 31, 1995, are not necessarily indicative
of the results that may be expected for any other period of for the year ending
September 30, 1996. 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, 1995.
2. Inventories
Inventories at December 31, 1995 and September 30, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1995 September 30, 1995
----------------- ------------------
<S> <C> <C>
Material and Supplies $19,153,780 $17,400,070
Work in Process 4,869,684 6,255,749
Finished Goods 8,440,600 7,573,580
----------- -----------
$32,464,064 $31,229,399
=========== ===========
</TABLE>
3. Earnings per Common Share and Common Equivalent Share:
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
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
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 period.
4. Depreciation
For the three months ended December 31, 1995 and 1994, depreciation
charges were $561,499 and $399,143, respectively.
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<PAGE> 6
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1995
5. Contingencies
Legal Proceedings
The Company is from time to time subject to various claims from
existing or former employees alleging gender, age or racial discrimination and
anti-union activity, none of which are expected to have a material adverse
affect on the Company. In addition, as a manufacturer of industrial products,
the Company is, from time to time, subjected to various product liability
claims. Such claims typically involve personal injury or wrongful death
associated with the use or misuse of the Company's products. While such claims
have not been material to the Company in any year and the Company believes that
it maintains adequate product liability insurance, there can be no assurance
that such insurance will continue to be available on terms acceptable to the
Company. Any product liability claim not fully covered by insurance, as well
as any adverse publicity from a product liability claim, could have a material
adverse effect on the Company. The Company is currently defending a few legal
proceedings involving product liability claims relating to McClain, Galion Dump
and E-Z Pack brand products. Galion Holding, pursuant to an indemnification it
provided Peabody Galion Division of Peabody International Corporation
("Peabody") in connection with the Galion Acquisition, is currently defending a
number of legal proceedings involving product liability claims arising out of
products manufactured by Peabody prior to the date of the Galion Acquisition.
These claims are also covered by insurance. Although the Company has already
settled many of these cases and the Company believes that it can continue to
successfully resolve these product liability claims, there can be no assurance
that the Company can continue to do so. The Company is not presently a party
to any material legal proceedings except as described above.
Environmental Matters
The Company's operations are subject to extensive federal, state and
local regulation under environmental laws and regulations concerning, among
other things, emissions into the air, discharges into the waters and the
generation, handling, storage, transportation, treatment and disposal of waste
and other materials. Inherent in manufacturing operations and in owning real
estate is the risk of environmental liabilities as a result of both current and
past operations, which cannot be predicted with
(continued)
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<PAGE> 7
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1995
5. Contingencies - (continued)
certainty. The Company has incurred and will continue to incur costs, on an
ongoing basis, associated with environmental regulatory compliance in its
business.
State and local agencies have become increasingly active in the
environmental area. The increased regulation by multiple agencies can be
expected to increase the Comapany's future environmental costs. In particular,
properties under federal and state scrutiny frequently result in significant
clean-up costs and litigation expenses related to a party's clean-up
obligation. However, the Company believes that the ever-increasing waste
stream and the continuing initiatives of government authorities relating to
environmental and waste disposal problems, including restrictions on landfill
locations and operations and extensive regulation relating to the disposal of
waste, create significant opportunities for companies in the solid waste
handling equipment industry. In addition, the trend towards classifying more
materials as "semi-hazardous" or "hazardous" waste may be expected to continue
to make handling such materials more complex, thereby further facilitating the
market for solid waste handling products.
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<PAGE> 8
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)
Three Months Ended
DECEMBER 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Net Sales $16,394,682 $20,602,031
Net Income (Loss) (267,029) 691,893
Net Earnings (Loss) Per Common
and Common Equivalent Share $ (.06) $ .20
<CAPTION>
(unaudited)
As of As of
December 31, September 30,
1995 1995
------------ ------------
<S> <C> <C>
Working Capital $35,759,837 $33,868,556
Total Assets 74,597,765 73,899,197
Long-Term Debt 33,382,995 31,170,287
Stockholder's Investment 22,838,190 22,841,274
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,584,369 4,657,476
Current Ratio 3.87:1 3.37:1
Long-Term Debt to Equity 1.46:1 1.36:1
</TABLE>
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<PAGE> 9
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)
Three Months Ended
December 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Net Sales 100.00% 100.00%
Cost of Sales 79.03 77.74
------ ------
Gross Profit 20.97 22.26
Selling, General &
Administrative Expenses 19.88 13.89
------ ------
Operating Income 1.09 8.37
Other Expenses (3.56) (3.29)
------ -------
Income Before Income Taxes (2.47) 5.08
Provision for Income Taxes ( .83) 1.73
------ -------
Net Income (1.64)% 3.35%
====== ======
</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
December 31,
1995 1994
----------------- -----------------
amount % amount %
----------------- -----------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $ 3,011 18.37 $ 3,694 17.93
Containers 2,697 16.45 5,501 26.70
Compactors and Unitized
Compaction Systems 3,631 22.15 1,880 9.12
Garbage and Recycling
Truck Bodies 4,481 27.33 4,888 23.72
Transfer Trailers 1,446 8.82 3,009 14.61
Replacement Parts 729 4.45 818 3.92
Other Product Sales 399 2.43 812 4.00
---------------- ----------------
Total Net Sale $16,394 100.00 $20,602 100.00
================ ================
</TABLE>
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<PAGE> 10
McCLAIN INDUSTRIES, INC.
DISCUSSION OF RESULTS OF OPERATIONS
Net sales decreased 20.42% to $16.4 million for the quarter ended
December 31, 1995 (Quarter 1995) from $20.6 million for the quarter ended
December 31, 1994 (Quarter 1994). The decline in sales is attributable to
intense competition by solid waste manufactures and a temporary decline in
purchases of equipment by the Solid Waste Industry. A decline in trailer
sales of $ 1.6 million and a decline in intermodal containers sales of $3.0
million were the primary consequences of these factors. Management has been
restructuring the sales force adding additional sales people and introducing
new products to increase sales and expects to see positive results of these
actions in the latter part of the second quarter of Fiscal 1996. Cost of sales
as a percentage of net sales was 79.03% for the Quarter 1995 compared to 77.74%
for the Quarter 1994 and was primarily due to lower revenues and increased
costs incurred for raw materials, which were not fully recoverable due to
intense pricing competition within the Solid Waste Industry. Selling, General
and administrative expenses as a percentage of net sales increased to 19.88%
for the Quarter 1995, primarily due to the lower sales volume. Interest
expense increased to 4.05% of net sales for the Quarter 1995 compared to 2.02%
of net sales for the Quarter 1994, primarily due to increased borrowings and a
lower sales volume. A net loss of $267,029 was incurred for Quarter 1995
compared to net income of $691,893 for the Quarter 1994 primarily due to lower
sales.
DISCUSSION OF FINANCIAL CONDITION
The Company had working capital of approximately $35.6 million at
December 31, 1995 compared to $33.9 million at September 30, 1995. The ratio
of current assets to current liabilities was 3.87 to 1 at December 31, 1995
compared to 3.37 to 1 at September 30, 1995. The Company's cash and cash
equivalents totaled $1.1 million at December 31, 1995. Cash flows utilized by
operations was $2.2 million for the quarter ended December 31, 1995, primarily
as a result of increased purchases of inventory and a reduction of accounts
payable. During this period investing activities utilized $396,964 primarily
as a result of machinery and equipment purchases. The expenditures for
inventory and payable reductions were financed by increased borrowings.
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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: FEBRUARY 13, 1996 By: /s/ Edward J. Zabinski
------------------------ ------------------------
Edward J. Zabinski, Treasurer
Date: FEBRUARY 13, 1996 By: /s/ Kenneth D. McClain
------------------------- --------------------------
Kenneth D. McClain, President
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<PAGE> 12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,100,007
<SECURITIES> 0
<RECEIVABLES> 14,298,607
<ALLOWANCES> 0
<INVENTORY> 32,464,064
<CURRENT-ASSETS> 48,203,094
<PP&E> 33,456,984
<DEPRECIATION> 12,438,306
<TOTAL-ASSETS> 74,597,765
<CURRENT-LIABILITIES> 12,443,257
<BONDS> 0
0
0
<COMMON> 5,332,791
<OTHER-SE> 17,505,399
<TOTAL-LIABILITY-AND-EQUITY> 74,597,765
<SALES> 16,394,682
<TOTAL-REVENUES> 16,394,682
<CGS> 12,957,066
<TOTAL-COSTS> 12,957,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 663,850
<INCOME-PRETAX> (404,029)
<INCOME-TAX> (137,000)
<INCOME-CONTINUING> (267,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (267,029)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
