<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, 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
(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, 1997.
Common Stock, No Par Value 4,680,163
- -------------------------- -----------------
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>
MARCH 31, SEPTEMBER 30,
1997 1996
(unaudited)
----------- -------------
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and Cash Equivalents $ 1,859,564 $ 1,065,039
Accounts Receivable (Net) 15,828,330 18,502,950
Inventories 30,382,864 25,577,000
Net Investment in Sales Type
Leases - Current Portion 2,646,576 1,910,000
Prepaid expenses 607,340 191,645
--------------- ----------------
Total Current Assets 51,324,674 47,246,634
--------------- ----------------
Property and equipment 40,711,694 38,147,522
Accumulated depreciation (14,966,027) (13,899,589)
--------------- ----------------
Net Property and Equipment 25,745,667 24,247,933
--------------- ----------------
Net Investment in Sales Type
Leases - Less Current Portion 5,137,471 3,645,975
--------------- ----------------
Other Assets 3,595,578 4,284,713
--------------- ----------------
Total Assets $ 85,803,390 $ 79,425,255
=============== ================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES
- -------------------
Current Portion of Long-Term Debt $ 2,100,000 $ 2,132,201
Accounts Payable 11,732,466 10,547,642
Accrued Liabilities 2,277,952 2,165,869
Federal and State Income Taxes 238,308 29,283
--------------- ----------------
Total Current Liabilities 16,348,726 14,874,995
--------------- ----------------
Deferred Income Taxes 2,100,000 2,100,000
--------------- ----------------
Long Term Debt - Less
Current Portion 38,462,420 34,217,149
--------------- ----------------
Other Liabilities 3,113,303 2,775,856
--------------- ----------------
Stockholders' Investment 25,778,941 25,457,255
--------------- ----------------
Total Liabilities and
Stockholders' Investment $ 85,803,390 $ 79,425,255
=============== ================
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 3
McCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
------ ----- ---- -----
<S> <C> <C> <C> <C>
Net Sales $ 21,439,361 $ 20,686,753 $ 40,289,775 $ 37,081,435
Cost of Sales 16,475,226 15,697,652 31,455,396 28,654,718
--------------- ------------- --------------- -------------
Gross Profit 4,964,135 4,989,101 8,834,379 8,426,717
Selling, General
and Administrative
Expenses 3,472,740 3,155,373 6,643,009 6,413,948
--------------- ------------- --------------- -------------
Operating profit 1,491,395 1,833,728 2,191,370 2,012,769
--------------- ------------- --------------- -------------
Other Income (Expense)
Interest expense (945,233) (892,700) (1,669,394) (1,556,550)
Interest income 329,272 181,585 580,435 363,385
Other expense (305,092) (306,096) (476,001) (407,116)
--------------- ------------- --------------- -------------
(921,053) (1,017,211) (1,564,960) (1,600,281)
--------------- ------------- --------------- -------------
Income before
Income Taxes 570,342 816,517 626,410 412,488
Provision for
Income Taxes 194,000 277,000 213,000 140,000
--------------- ------------- --------------- -------------
Net Income $ 376,342 $ 539,517 $ 413,410 $ 272,488
=============== ============= =============== =============
Net Income per
Common and Common
Equivalent Shares $ .08 $ .11 $ .09 $ .06
=============== ============= =============== =============
Weighted Average
Number of Common and
Common Equivalent
Shares
Outstanding 4,709,533 4,744,018 4,709,533 4,744,018
=============== ============= =============== =============
</TABLE>
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 7 1 9 9 6
------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 413,410 $ 272,488
-------------- --------------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,755,230 1,245,844
Common stock issued in lieu of cash 5,244 5,292
Changes in operating assets and liabilites which provided (used) cash:
Current assets excluding
cash & cash equivalents (3,283,515) (2,418,619)
Other assets (1,106,373) (2,708,035)
Accounts payable 1,184,824 (1,510,620)
Accrued liabilities 112,083 272,175
Federal income tax 209,025 ( 16,820)
Other liabilities 337,447 2,063,092
-------------- --------------
TOTAL ADJUSTMENTS ( 786,035) (3,067,691)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES ( 372,625) (2,795,203)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,948,952) ( 734,853)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (2,948,952) ( 734,853)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long term debt 4,213,070 2,455,232
Sale of common stock - 258,732
Redemption of common stock ( 96,968) -
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,116,102 2,713,964
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 794,525 ( 816,092)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,065,039 1,173,370
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,859,564 $ 357,278
============== ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
McCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1997
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 consisting
of normal recurring items considered necessary for a fair presentation have
been included. Operating results for the three month and six month periods
ended March 31, 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 March 31, 1997 and September 30, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31,1997 September 30,1996
------------- -----------------
<S> <C> <C>
Material and Supplies $13,871,083 $11,677,000
Work in Process 8,049,196 6,776,000
Finished Goods 8,462,585 7,124,000
----------- -----------
$30,385,864 $25,577,000
=========== ===========
</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.
4. Depreciation
For the six months ended March 31, 1997 amd 1996, depreciation charges
were $1,451,218 and $1,183,206, respectively.
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<PAGE> 6
McCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1997
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)
SIX MONTHS ENDED MARCH 31, 1997
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) (unaudited)
Three Months ended Six Months ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $21,439,361 $20,686,753 $40,289,775 $37,081,435
Net Income $ 376,342 $ 539,517 $ 413,410 $ 272,488
Net Earnings Per
Common and Common
Equivalent Share $ .08 $ .11 $ .09 $ .06
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
As of As of
March 31, September 30,
1997 1996
------------ --------------
<S> <C> <C>
Working Capital $34,975,948 $ 32,371,639
Total Assets 85,803,390 79,425,255
Long-Term Debt 38,462,420 34,217,149
Stockholders' Investment 25,972,122 25,427,255
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,738,297 4,752,050
Current Ratio 3.14:1 3.18:1
Long-Term Debt to
Stockholders' Investment 1.48:1 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 Six Months Ended
March 31, March 31,
---------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Net Sales 100.00% 100.00% 100.00% 100.00%
Cost of Sales 76.85 75.88 78.07 77.28
------ ------ ------- -------
Gross Profit 23.15 24.12 21.92 22.72
Selling, General &
Administrative Expenses 16.19 15.25 16.49 17.29
------ ------ ------- -------
Operating Income 6.96 8.87 5.43 5.43
Other Expenses ( 4.30) ( 4.92) ( 3.88) (4.32)
------ ------ ------- -------
Income Before Income Taxes 2.66 3.95 1.55 (1.11)
Provision for Income Taxes ( .90) ( 1.34) ( .52) ( .38)
------ ------ ------- -------
Net Income 1.76% 2.61% 1.03% .73%
====== ====== ======= =======
</TABLE>
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<PAGE> 10
McCLAIN INDUSTRIES, INC.
DISCUSSION OF RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1997 (Quarter 1997) increased
3.64% to $21.4 million from $20.7 million for the quarter ended March 31, 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
has intensified competition among manufacturers in the Solid Waste Equipment
Industry creating increased pressure on both selling prices and gross margins.
Management believes that the Company's continuing efforts to evaluate and
upgrade its internal processes will result in better cost controls and improved
efficiencies allowing increased sales and stronger profits to be generated.
Cost of sales increased to 76.85% for the Quarter 1997 compared to 75.88% for
Quarter 1996 due primarily to higher raw material costs. Selling, General and
Administrative expenses increased to 16.19% of net sales for the Quarter 1997
from 15.25% for the Quarter 1996 primarily due to increased sales cost and the
addition of the Demopolis facility.
Net sales for the six months ended March 31, 1997 increased 8.65% to $40.3
million from $37.0 million for the six months ended March 31, 1996. Cost of
sales for the six months ended March 31, 1997 increased to 78.07% from 77.28%
for the six months ended March 31, 1996. Selling, General and Administrative
expenses decreased to 16.49% of net sales for the six months ended March 31,
1997 from 17.29% for the six months ended March 31, 1996.
DISCUSSION OF FINANCIAL CONDITION
The Company had working capital of approximately $35.0 million at March
31, 1997 compared to $32.4 million at September 30, 1996. The ratio of current
assets to current liabilities was 3.14 to 1 at March 31, 1997 compared to 3.18
to 1 at September 30, 1996. Cash flows utilized by operations were $0.6
million for the six months ended March 31, 1997 primarily due to increased
activity by the Company's leasing subsidiary. During this period the Company
utilized $2.9 million for the acquisition of machinery and equipment. The
increases in leasing activity and machinery and equipment acquisitions were
financed primarily by increased borrowing.
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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, 1997 By: /s/ Carl Jaworski
------------------------- ------------------------------
Carl Jaworski, Treasurer
Date: MAY 9, 1997 By: /s/ Kenneth D. McClain
------------------------- ------------------------------
Kenneth D. McClain, President
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<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ----------- --------------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,859,564
<SECURITIES> 0
<RECEIVABLES> 15,828,330
<ALLOWANCES> 0
<INVENTORY> 30,382,864
<CURRENT-ASSETS> 51,324,674
<PP&E> 40,711,694
<DEPRECIATION> 14,966,027
<TOTAL-ASSETS> 85,803,390
<CURRENT-LIABILITIES> 16,348,726
<BONDS> 0
0
0
<COMMON> 5,189,813
<OTHER-SE> 20,589,128
<TOTAL-LIABILITY-AND-EQUITY> 85,803,390
<SALES> 40,289,775
<TOTAL-REVENUES> 40,289,775
<CGS> 31,455,396
<TOTAL-COSTS> 31,455,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,669,394
<INCOME-PRETAX> 626,410
<INCOME-TAX> 213,000
<INCOME-CONTINUING> 413,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,410
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
