<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, 1997
[ ] 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 August 9, 1997.
Common Stock, No Par Value 4,744,357
- -------------------------- ----------------
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,
1997 1996
(unaudited) *
-------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 1,507,580 $ 1,065,039
Accounts Receivable (Net) 18,244,577 18,502,950
Inventories 32,249,506 25,577,000
Net Investment in Sales Type
Leases - Current Portion 2,790,000 1,910,000
Prepaid expenses 326,111 191,645
----------- -----------
Total Current Assets 55,117,774 47,246,634
----------- -----------
Property and equipment 41,027,855 38,147,522
Accumulated depreciation (15,393,514) (13,899,589)
----------- -----------
Net Property and Equipment 25,634,341 24,247,933
----------- -----------
Net Investment in Sales Type
Leases - Less Current Portion 5,412,071 3,706,350
----------- -----------
Other Assets 3,667,940 4,224,338
----------- -----------
Total Assets $89,832,126 $79,425,255
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current Portion of Long-Term Debt $2,900,000 $ 2,132,201
Accounts Payable 15,246,938 10,547,642
Accrued Liabilities 2,499,137 2,165,869
Federal and State Income Taxes 797,269 29,283
----------- -----------
Total Current Liabilities 21,443,344 14,874,995
----------- -----------
Deferred Income Taxes 2,100,000 2,100,000
----------- -----------
Long Term Debt - Less
Current Portion 36,395,293 34,217,149
----------- -----------
Other Liabilities 2,933,589 2,775,856
----------- -----------
Stockholders' Investment 26,959,900 25,457,255
----------- -----------
Total Liabilities and
Stockholders' Investment $89,832,126 $79,425,255
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
* Derived from audited financial statements
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<PAGE> 3
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------- ------------------
<S> <C> <C> <C> <C>
Net Sales $26,082,847 $24,924,635 $66,372,622 $62,006,070
Cost of Sales 20,065,011 18,414,853 51,520,407 47,069,571
----------- ----------- ----------- -----------
Gross Profit 6,017,836 6,509,782 14,852,215 14,936,499
Selling, General
and Administrative
Expenses 3,564,626 3,069,875 10,207,635 9,483,823
----------- ----------- ----------- -----------
Operating Profit 2,453,210 3,439,907 4,644,580 5,452,676
----------- ----------- ----------- -----------
Other Income (Expense)
Interest expense (842,055) (753,650) (2,511,449) (2,310,200)
Interest income 304,540 196,096 884,975 559,481
Other expense (344,936) ( 33,278) ( 820,937) (440,394)
----------- ----------- ----------- -----------
Net Other Expense (882,451) (590,832) (2,447,411) (2,191,113)
----------- ----------- ----------- -----------
Income before
Income taxes 1,570,759 2,849,075 2,197,169 3,261,563
Income taxes 534,000 969,000 747,000 1,109,000
----------- ----------- ----------- -----------
Net Income $ 1,036,759 $ 1,880,075 $ 1,450,169 $ 2,152,563
=========== =========== =========== ===========
Net Income Per Common
Equivalent Shares $ .21 $ .40 $ .30 $ .46
=========== =========== =========== ===========
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 4,773,727 4,698,042 4,773,727 4,698,042
=========== =========== =========== ===========
</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 7 1 9 9 6
------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $1,450,169 $2,152,563
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 2,685,268 1,885,700
Common stock issued in lieu of cash 20,244 4,246
Changes in operating assets and liabilites
which provided (used) cash:
Current assets excluding
cash & cash equivalents (7,428,600) (2,863,752)
Other assets (1,605,890) (1,000,881)
Accounts payable 4,699,296 1,428,184)
Accrued liabilities 333,268 ( 127,057)
Federal income tax 767,986 433,415
Other liabilities 151,733 564,101
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,079,474 2,476,519
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (3,615,109) (1,236,035)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,615,109) (1,236,035)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions (repayments of) long term debt 2,945,943 ( 540,790)
Sale of common stock 129,201 169,219
Redemption of common stock ( 96,968) -
----------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,978,176 ( 371,571)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 442,541 868,913
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,065,039 1,173,370
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,507,580 $ 2,042,283
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1997
1. Basis of Presentation
The accompanying unaudited Condensed 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
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and
nine month periods ended June 30, 1997, are not necessarily indicative of the
results that may be expected for the year ending September 30, 1997. 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, 1996.
2. Inventories
Inventories at June 30, 1997 and September 30, 1996 are summarized as
follows:
(Unaudited)
June 30, 1997 September 30,1996
------------- -----------------
Material and Supplies $14,512,278 $11,677,000
Work in Process 8,707,367 6,776,000
Finished Goods 9,029,861 7,124,000
----------- -----------
$32,249,506 $25,577,000
=========== ===========
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 share
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.
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<PAGE> 6
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1997
3. Earnings per Common Share and Common Equivalent Share - (continued)
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
SFAS No. 128 simplifies the standards for computing earnings per share (EPS)
and makes them comparable to international EPS standards. It also replaces the
presentation of primary EPS with a presentation of basic EPS. Implementation
of SFAS No. 128 is not expected to have a material impact on the Corporation's
reporting of EPS. SFAS No. 128 is required to be implemented for periods
ending after December 15, 1997.
4. Depreciation
For the nine months ended June 30, 1997 and 1996, depreciation charges
were $2,228,700 and $1,791,124. 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
6 of 11
<PAGE> 7
MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1997
5. Contingencies - (continued)
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
certainty. The Company has incurred and will continue to incur costs, on an
ongoing basis, associated with environmental regulatory compliance in its
business.
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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) (unaudited)
Three Months ended Nine Months ended
June 30, June 30,
1997 1996 1997 1996
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $26,082,847 $24,924,635 $66,372,622 $62,006,070
Net Income $ 1,036,759 $ 1,880,075 $ 1,450,169 $ 2,152,563
Net Earnings Per
Common and Common
Equivalent Share $ .21 $ .40 $ .30 $ .46
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
As of As of
June 30, September 30,
1997 1996
----------- -------------
<S> <C> <C>
Working Capital $33,674,430 $32,371,639
Total Assets 89,832,126 79,425,255
Long-Term Debt 36,395,293 34,217,149
Stockholders' Investment 26,959,900 25,427,255
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,773,727 4,752,050
Current Ratio 2.57:1 3.18:1
Long-Term Debt to Stockholders'Equity 1.35:1 1.34:1
</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) (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.00% 100.00% 100.00% 100.00%
Cost of Sales 76.93 73.88 77.62 75.91
------ ------ ------ ------
Gross Profit 23.07 26.12 22.38 24.09
Selling, General &
Administrative Expenses 13.67 12.32 15.38 15.30
------ ------ ------ ------
Operating Income 9.40 13.80 7.00 8.79
Other Expenses ( 3.38) ( 2.37) ( 3.69) (3.53)
------ ------ ------ ------
Income Before Income Taxes 6.02 11.43 3.31 5.26
Provision for Income Taxes 2.05 3.89 1.13 1.79
------ ------ ------ ------
Net Income 3.97% 7.54% 2.18% 3.47%
====== ======= ====== ======
</TABLE>
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<PAGE> 10
MCCLAIN INDUSTRIES, INC.
DISCUSSION OF RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1997 (Quarter 1997) increased
4.64% to $26.1 million from $24.9 million for the quarter ended June 30, 1996
(Quarter 1996). The increase in sales is attributable primarily to the
acquisition of the Demopolis facility in August of 1996 (see the Company's
annual report on Form 10-K for the year ended September 30, 1996). The
restructuring and consolidation of certain national and regional refuse haulers
continues to create intense competition among manufacturers in the Solid Waste
Equipment Industry causing significant pressure on selling prices and gross
margins. Management believes that the Company's continuing efforts to evaluate
and upgrade its internal processes together with the diverse product line the
Company has to offer will provide better cost conrols and increased sales
allowing for stronger profits to be generated. Cost of sales increased to
76.92% for the Quarter 1997 compared to 73.88% for the Quarter 1996. Selling,
General, and Administrative expenses increased to 13.67% of net sales for the
Quarter 1997 compared to 12.32% for the Quarter 1996 due primarily to
increased sales costs and the addition of the Demopolis facility.
Net sales for the nine months ended June 30, 1997 increased to 7.04% to
$66.4 million from $62.0 million for the nine months ended June 30, 1996. Cost
of sales for the nine months ended June 30, 1997 increased to 77.62% from
75.91% for the nine months ended June 30, 1996. Selling, General, and
Administrative expenses increased to 15.38% of net sales for the nine months
ended June 30, 1997 from 15.30% for the nine months ended June 30, 1996.
DISCUSSION OF FINANCIAL CONDITION
The Company had working capital of approximately $33.7 million at June 30,
1997 compared to $32.4 million at September 30, 1996. The ratio of current
assets to current liabilities was 2.57 to 1 at June 30, 1997 compared to 3.18
to 1 at September 30, 1996. Cash flows provided by operations were
approximately $1.1 million for the nine months ended June 30, 1997. During
this period the Company utilized $3.6 million for the acquisition of machinery
and equipment.
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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: AUGUST 11, 1997 By: /s/ Kenneth D. McClain
-------------------- -------------------------------
Kenneth D. McClain, President
Date: AUGUST 11, 1997 By: /s/ Mark S. Mikelait
-------------------- -------------------------------
Mark S. Mikelait, Treasurer
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<PAGE> 12
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,507,580
<SECURITIES> 0
<RECEIVABLES> 18,244,577
<ALLOWANCES> 0
<INVENTORY> 32,249,506
<CURRENT-ASSETS> 55,117,774
<PP&E> 41,027,855
<DEPRECIATION> 15,393,514
<TOTAL-ASSETS> 89,832,126
<CURRENT-LIABILITIES> 21,443,344
<BONDS> 0
0
0
<COMMON> 5,334,013
<OTHER-SE> 21,625,887
<TOTAL-LIABILITY-AND-EQUITY> 89,832,126
<SALES> 66,372,622
<TOTAL-REVENUES> 66,372,622
<CGS> 51,520,407
<TOTAL-COSTS> 51,520,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,511,449
<INCOME-PRETAX> 2,197,169
<INCOME-TAX> 747,000
<INCOME-CONTINUING> 1,450,169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,450,169
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
</TABLE>
