<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, 1996
[ ] 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, 1996.
Common Stock, No Par Value 4,710,081
- -------------------------- ----------------
Class Number of Shares
1 of 11
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
McCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
1996 1995
(unaudited) *
----------- -------------
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and Cash Equivalents $ 357,278 $ 1,173,370
Accounts Receivable (Net) 17,524,011 15,590,278
Inventories 31,494,061 31,229,399
Prepaid Expenses 396,299 176,075
----------- -----------
Total Current Assets 49,771,649 48,169,122
----------- -----------
Property and Equipment 33,736,998 33,078,135
Accumulated Depreciation (13,002,138) (11,894,922)
----------- -----------
Net Property and Equipment 20,734,860 21,183,213
----------- -----------
Other Assets 7,254,897 4,546,862
----------- -----------
Total Assets $77,761,406 $73,899,197
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Current Portion of Long-Term Debt $ 1,905,213 $ 2,179,449
Accounts Payable 7,679,689 9,190,309
Accrued Liabilities 2,603,984 2,331,809
Federal Income Tax 582,179 598,999
----------- -----------
Total Current Liabilities 12,771,065 14,300,566
----------- -----------
Deferred Income Taxes 1,440,000 1,440,000
----------- -----------
Long Term Debt - Less
Current Portion 33,899,755 31,170,287
----------- -----------
Other Liabilities
and Contingencies 6,210,162 4,147,070
----------- -----------
Stockholders' Equity 23,440,424 22,841,274
----------- -----------
Total Liabilities and
Stockholders' equity $77,761,406 $73,899,197
=========== ===========
</TABLE>
See notes to consolidated financial statements.
* Derived from audited financial statements.
2 of 11
<PAGE> 3
McCLAIN INDUSTRIES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
Unaudited
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
------------------------- -------------------------
[S] [C] [C] [C] [C]
Net Sales $20,686,753 $21,382,043 $37,081,435 $41,984,074
Cost of Sales 15,697,652 16,542,603 28,654,718 32,557,845
----------- ----------- ----------- -----------
Gross Profit 4,989,101 4,839,440 8,426,717 9,426,229
Selling, General
and Administrative
Expenses 3,l55,373 3,033,963 6,413,948 5,894,793
----------- ----------- ----------- -----------
Operating Income 1,833,728 1,805,477 2,012,769 3,531,436
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Expense (892,700) (494,616) (1,556,550) (911,521)
Interest Income 181,585 9,818 363,385 65,743
Other Expense (306,096) (159,515) (407,116) (476,601)
----------- ----------- ----------- -----------
(1,017,211) (644,313) (1,600,281) (1,322,379)
----------- ----------- ----------- -----------
Income before
Income taxes 816,517 l,161,164 412,488 2,209,057
Provision for
Income taxes 277,000 395,000 140,000 751,000
----------- ----------- ----------- -----------
Net Income $ 539,517 766,164 $ 272,488 $ 1,458,057
=========== =========== =========== ===========
Net Income per
Common and Common
Equivalent Shares $ .11 $ .17 $ .06 $ .32
=========== =========== =========== ===========
Weighted Average
Number of Common and
Common Equivalent
Shares
Outstanding 4,744,018 4,619.193 4,744,018 4,619,193
=========== =========== =========== ===========
See notes to consolidated financial statements
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<PAGE> 4
McCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
1 9 9 6 1 9 9 5
--------- ---------
<S> <C> <C>
Net income $ 272,488 1,458,057
---------- ----------
Adjustments to reconcile net income to net
cash (used) by operating activities:
Depreciation and amortization 1,245,844 876,369
Deferred Income Taxes - ( 2,084)
Common stock issued in lieu of cash 5,292 -
Changes in operating assets which provided
(used) cash:
Current assets excluding
cash & cash equivalents (2,418,619) (9,376,050)
Other assets (2,708,035) ( 52,963)
Accounts payable (1,510,620) 630,236
Accrued liabilities 272,175 284,080
Federal income tax ( 16,820) 1,018,331
Other liabilities 2,063,092 169,637
---------- ----------
TOTAL ADJUSTMENTS (3,067,691) (6,452,444)
---------- ----------
NET CASH (USED) BY OPERATING ACTIVITIES (2,795,203) (4,994,387)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 734,853) (1,333,433)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES ( 734,853) (1,333,433)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal additions (repayments) of long term debt 2,455,232 6,285,347
Sale (repurchase) of common stock 258,732 5,244
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,713,964 6,290,591
---------- ----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ( 816,092) ( 37,229)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,173,370 1,697,713
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 357,278 $1,660,484
========== ==========
</TABLE>
4 of 11
<PAGE> 5
McCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
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, 1996, are not
necessarily indicative of the results that may be expected 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 March 31, 1996 and September 30, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31,1996 September 30,1995
<S> <C> <C>
Material and Supplies $18,489,757 $17,400,070
Work in Process 4,700,786 6,255,749
Finished Goods 8,303,518 7,573,580
----------- -----------
$31,494,061 $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 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.
5 of 11
<PAGE> 6
McCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1996
4. Depreciation
For the six months ended March 31, 1996 and 1995, depreciation charges
were $1,183,206 and $835,929,respectively.
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.
6 of 11
<PAGE> 7
McCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1996
5. Contingencies - (continued)
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 certainty. The Company has incurred
and will continue to incur costs, on an ongoing basis, associated with
environmental regulatory compliance in its business.
7 of 11
<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) (unaudited)
Three Months ended Six Months ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $20,686,753 $21,382,043 $37,081,435 $41,984,074
Net Income $ 539,517 $ 766,164 $ 272,488 $ 1,458,057
Net Earnings Per
Common and Common
Equivalent Share $ .11 $ .17 $ .06 $ .32
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
As of As of
March 31, September 30,
1996 1995
---- ----
<S> <C> <C>
Working Capital $37,000,584 $33,868,556
Total Assets 77,761,406 73,899,197
Long-Term Debt 33,899,755 31,170,287
Stockholders' Investment 23,440,424 22,841,274
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,744,018 4,657,476
Current Ratio 3.89:1 3.37:1
Long-Term Debt to Stockholders'Equity 1.45:1 1.36:1
</TABLE>
8 of 11
<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) (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
--------------------------------------
<S> <C> <C> <C> <C>
Sales 100.00% 100.00% 100.00% 100.00%
Cost of Sales 75.88 77.37 77.28 77.55
------ ----- ------ -------
Gross Profit 24.12 22.63 22.72 22.45
Selling, General &
Admin. Expense 15.25 14.19 17.29 14.04
------ ----- ------ -------
Operating Income 8.87 8.44 5.43 8.41
Other Expenses (4.92) (3.01) (4.32) (3.15)
------ ----- ------ ------
Income Before Income Tax 3.95 5.43 1.11 5.26
Provision for Income Taxes 1.34 1.85 .38 1.79
------ ----- ------ ------
Net Income 2.61% 3.58% .73% 3.47%
====== ===== === ======
</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,
--------------------------------------
1996 1995
----------------- -----------------
amount % amount %
----------------- -----------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $ 5,301 25.62 $ 5,252 24.56
Containers 4,199 20.30 4,696 21.96
Compactors and Unitized
Compaction Systems 1,750 8.46 2,412 11.28
Balers 849 4.10 - -
Garbage and Recycling
Truck Bodies 5,567 26.91 6,544 30.60
Transfer Trailers 1,143 5.53 975 4.56
Replacement Parts 640 3.10 494 2.32
Other Product Sales 1,237 5.98 1,009 4.72
------- ------ ------- ------
Total Net Sales $20,686 100.00% $21,382 100.00%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
For the Six Months Ended
March 31,
--------------------------------------
1996 1995
----------------- -----------------
amount % amount %
----------------- -----------------
<S> <C> <C> <C> <C>
Dump Truck Bodies $ 8,312 22.42 $ 8,946 21.31
Containers 6,896 18.60 10,198 24.29
Compactors and Unitized
Compaction Systems 4,536 12.23 4,292 10.22
Balers 1,694 4.57 - -
Garbage and Recycling
Truck Bodies 10,048 27.10 11,431 27.23
Transfer Trailers 2,589 6.98 3,984 9.49
Replacement Parts 1,369 3.69 1,312 3.12
Other Product Sales 1,637 4.41 1,821 4.34
------- ------ ------- ------
Total Net Sales $37,081 100.00% $41,984 100.00%
======= ====== ======= ======
</TABLE>
9 of 11
<PAGE> 10
McCLAIN INDUSTRIES, INC.
DISCUSSION OF RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1996 (Quarter 1996) decreased
3.36% to $20.7 million from $21.4 million for the quarter ended March 31, 1995
(Quarter 1995). The decline in sales is attributable primarily to intense
competition among manufacturers within the Solid Waste Equipment Industry. The
restructuring of the sales department that the Company began in the first
quarter of fiscal 1996 is continuing as planned. Management believes this
effort began to show positive results late in the Quarter 1996 and expects the
positive results realized by this restructuring to continue into the
foreseeable future. Cost of sales as a percentage of net sales decreased to
75.88% for the Quarter 1996 from 77.37% for the Quarter 1995 due primarily to
lower raw material costs. Selling, General and Administrative expenses
increased to 15.25% of net sales for the Quarter 1996 from 14.19% for the
Quarter 1995 primarily due to the lower sales volume.
Net sales for the six months ended March 31, 1996 decreased 13.22% to
$37.01 million from $42.0 million for the six months ended March 31, 1995.
Cost of sales for the six months ended March 31, 1996 decreased to 77.28% from
77.55% for the six months ended March 31, 1995. Selling, General and
Administrative expenses increased to 17.29% of net sales for the six months
ended March 31, 1996 from 14.04% for the six months ended March 31, 1995 due
primarily to the lower sales volume, particularly in the first quarter of
fiscal 1996.
DISCUSSION OF FINANCIAL CONDITION
The Company had working capital of approximately $37.0 million at March
31, 1996 compared to $33.9 million at September 30, 1995. The ratio of
current assets to current liabilities was 3.89 to 1 at March 31, 1996 compared
to 3.37 to 1 at September 30, 1995. Cash flows utilized by operations were
$2.8 million for the six months ended March 31, 1996 primarily due to increased
activity by the Company's leasing subsidiary and a reduction in accounts
payable. During this period the Company utilized $734,853 for the acquisition
of machinery and equipment. The increase in leasing activity, accounts payable
reduction and machinery and equipment acquisitions were financed primarily 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: MAY 9, 1996 By: /s/ Carl Jaworski
----------------------- ----------------------------
Carl Jaworski, Treasurer
Date: MAY 9, 1996 By: /s/ Kenneth D. McClain
----------------------- ----------------------------
Kenneth D. McClain, President
11 of 11
<PAGE> 12
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 357,278
<SECURITIES> 0
<RECEIVABLES> 17,524,011
<ALLOWANCES> 0
<INVENTORY> 31,494,061
<CURRENT-ASSETS> 49,771,649
<PP&E> 33,736,998
<DEPRECIATION> 13,002,138
<TOTAL-ASSETS> 77,761,406
<CURRENT-LIABILITIES> 12,771,065
<BONDS> 0
<COMMON> 5,366,821
0
0
<OTHER-SE> 18,073,603
<TOTAL-LIABILITY-AND-EQUITY> 77,761,406
<SALES> 37,081,435
<TOTAL-REVENUES> 37,081,435
<CGS> 28,654,718
<TOTAL-COSTS> 28,654,718
<OTHER-EXPENSES> 6,824,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,556,550
<INCOME-PRETAX> 412,488
<INCOME-TAX> 140,000
<INCOME-CONTINUING> 272,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272,488
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
