<PAGE> 1
FORM 10-Q/A
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, 1998
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 5, 1999.
Common Stock, No Par Value 4,668,911
- -------------------------- ----------------
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,
1998 1998
(unaudited)
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ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 724,482 $ 1,924,006
Accounts Receivable (Net) 18,899,386 24,235,761
Inventories 42,290,752 38,873,477
Net Investment in Sales Type
Leases - Current Portion 3,250,000 3,100,000
Prepaid Expenses 565,483 543,095
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Total Current Assets 65,730,103 68,676,339
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Property and Equipment 42,464,708 42,100,575
Accumulated Depreciation (19,559,704) (18,834,030)
Net Property and Equipment 22,905,004 23,266,545
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Net Investment in Sales Type
Leases - Less Current Portion 6,256,909 6,013,959
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Other Assets 2,239,163 2,290,124
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Total Assets $97,131,179 $100,246,967
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current Portion of Long-Term Debt 3,300,000 3,300,000
Accounts Payable 15,847,909 18,405,224
Accrued Liabilities 4,780,838 4,537,434
Federal and State Income Taxes 0 513,994
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Total Current Liabilities 23,928,747 26,756,652
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Deferred Income Taxes 2,215,000 2,215,000
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Long Term Debt - Less
Current Portion 40,959,327 42,530,105
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Product Liability 2,631,313 1,909,904
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Stockholders' Equity 27,396,792 26,835,306
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Total Liabilities and
Stockholders' equity $97,131,179 $100,246,967
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
MCCLAIN INDUSTRIES, INC.
------------------------
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
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UNAUDITED
---------
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
--------------------------
<S> <C> <C>
Net Sales $27,156,906 $23,625,324
Cost of Sales 22,314,809 19,252,930
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Gross Profit 4,842,097 4,372,394
Selling General
and Administrative
Expenses 3,446,543 3,278,925
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Operating Income 1,395,554 1,093,469
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Other Income (Expense)
Interest Expense (863,076) (831,574)
Interest Income 363,639 308,819
Other Income (Expense) ( 45,631) ( 59,177)
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Net Other Expense (545,068) (581,932)
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Income Before Income Taxes 850,486 511,537
Income Taxes 289,000 174,000
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Net Income $ 561,486 $ 337,537
=========== ===========
Net income per common
share (basic and diluted) $ .12 $ .07
=========== ===========
Weighted average number of
common shares (basic and
diluted) 4,682,160 4,762,953
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE> 4
MCCLAIN INDUSTRIES, INC.
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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UNAUDITED
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net income $ 561,486 $ 337,537
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 800,753 857,339
Changes in assets and liabilities which
provided (used) cash
Current assets excluding cash & equivalents 1,746,712 798,664
Other assets (306,331) 46,287
Accounts payable (2,557,315) (567,347)
Accrued expenses 243,404 (166,665)
Federal and state income taxes (513,994) 452,771
Product liabilty 721,409 251,340
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NET CASH PROVIDED BY OPERATING ACTIVITIES 696,124 2,009,926
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (324,870) (327,031)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal reductions of long term debt (1,570,778) (2,165,982)
Sale of common stock 0 61,369
Redemption of common stock 0 (40,000)
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NET CASH USED IN FINANCING ACTIVITIES (1,570,778 (2,144,613)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (1,199,524) (461,718)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,924,006 2,402,421
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 724,482 $1,940,703
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
MCCLAIN INDUSTRIES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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THREE MONTHS ENDED DECEMBER 31, 1998
------------------------------------
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 ended December 31, 1998, are not necessarily indicative of
the results that may be expected for the year ending September 30, 1999. 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, 1998.
2. Inventories
Inventories at December 31, 1998 and September 30, 1998 are summarized
as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1998 September 30, 1998
----------------- ------------------
<S> <C> <C>
Material and Supplies $22,590,752 $22,100,252
Work in Process 6,200,000 5,707,374
Finished Goods 13,500,000 11,065,851
----------- -----------
$42,290,752 $38,873,477
=========== ===========
</TABLE>
3. Earnings per Common Share and Common Equivalent Share:
Earnings per share is computed using the weighted average number of
common shares outstanding during the year. The Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", effective
September 30, 1998. This statement requires a dual presentation and
reconciliation of "basic" and "diluted" per share amounts. Diluted reflects the
potential dilution of all common stock equivalents. At December 31, 1998, and
1997 options to purchase 264,464 and 132,311 shares, respectively, were excluded
from the computation of earnings per share because the options' exercise prices
were greater than the average market price of the common shares.
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<PAGE> 6
MCCLAIN INDUSTRIES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
------------------------------------
4. Depreciation
For the three months ended December 31, 1998 and 1997, depreciation charges
were $686,411 and $774,228, respectively.
5. Contingencies
Product Liability
As a manufacturer of industrial products, the Company is occasionally
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. The Company is currently defending certain legal proceedings
involving allegations of product liability relating to products manufactured and
sold by the Company. Historically, such claims have not resulted in material
losses to the Company in any one year, and the Company maintains product
liability insurance in amounts believed by management to be adequate.
Galion Holding Company (GHC), pursuant to an indemnification it
provided to the seller in connection with GHC's July 1992 acquisition of the
Galion operations, is currently defending a number of legal proceedings
involving product liability claims arising out of products manufactured and sold
prior to the acquisition. These claims are covered by insurance and many of
these cases have been settled. In addition, the acquisition agreement called for
the seller to share in the payment of certain costs related to the defense of
these cases. On December 29, 1998 the Company reached a settlement agreement
with the seller, the terms of which called for the Company to release the seller
from its obligations related to product liability claims under the Galion
acquisition agreement in exchange for a cash payment of $1,050,000.
A reserve to provide for these product claims was established at the
acquisition date. Since many of the cases have been settled and insurance
coverage exists, management believes that the ongoing costs to defend these
claims will not exceed the amount accrued on the accompanying consolidated
balance sheet at December 31, 1998.
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
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<PAGE> 7
MCCLAIN INDUSTRIES, INC.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
------------------------------------
5. Contingencies - (continued)
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.
Labor Union Matters
Certain of the Company's hourly employees are represented by various
labor unions pursuant to collective bargaining agreement which expire between
September 1999 and June 2000.
On February 23, 1995, the National Labor Relations Board (NLRB) conducted an
election in response to a petition filed by a local union (Union) to represent
the hourly employees at the Company's Macon, Georgia plant. The ballots of
certain employees were challenged as ineligible. The Union filed charges
asserting that the Company committed various unfair labor practices which
affected the election results and that the challenged ballots should be counted.
On October 17, 1996 the NLRB upheld the unfair labor practice charges and on
November 5, 1996 the NLRB determined that the results of the election were in
favor of the Union. Management, based upon the opinion of counsel, does not
believe a final decision upholding the Union certification or the unfair labor
practice charges would have a material adverse effect on the Company.
Other Legal Matters
The Company is also involved in routine litigation incidental to its
business. Management believes that the resolution of these matters will not
materially affect the consolidated financial statements.
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<PAGE> 8
MCCLAIN INDUSTRIES, INC.
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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,
------------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales $27,156,906 $23,625,324
Net Income 561,486 337,537
Net Earnings Per Common
Share (basic and diluted) $ .12 $ .07
<CAPTION>
(Unaudited)
As of As of
December 31, September 30,
1998 1998
------------ --------------
<S> <C> <C>
Working Capital $41,801,356 $41,919,687
Total Assets 97,131,179 100,246,967
Long-Term Debt 40,959,327 42,530,105
Stockholder's Investment 27,396,792 26,835,306
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,682,160 4,762,953
Current Ratio 2.75:1 2.57:1
Long-Term Debt to Equity 1.50:1 1.59:1
</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,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales 100.00% 100.00%
Cost of Sales 82.17 81.49
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Gross Profit 17.83 18.51
Selling, General &
Administrative Expenses 12.69 13.88
------- -------
Operating Income 5.14 4.63
Other Expenses ( 2.01) (2.46)
------- -------
Income Before Income Taxes 3.13 2.17
Provision for Income Taxes 1.06 .74
------- -------
Net Income 2.07% 1.43%
======= =======
</TABLE>
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<PAGE> 10
MCCLAIN INDUSTRIES, INC.
------------------------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
----------------------------------------------
Net sales increased 14.95% to $27.2 million for the quarter ended December 31,
1998 (Quarter 1998) from $23.6 million for the quarter ended December 31, 1997
(Quarter 1997). The increase in sales is attributable primarily to strong sales
in the McClain E-Z Pack product line and the company's truck program.
Cost of sales as a percentage of net sales increased to 82.17% for the Quarter
1998 from 81.49% for the Quarter 1997. Selling, General and Administrative
expenses decreased to 12.69% of net sales for the Quarter 1998 as a result of
the increased sales volume and the restructing of certain administrative
processes.
The Company had working capital of $41.8 million at December 31, 1998
compared to $41.9 million at September 30, 1998. The ratio of current assets to
current liabilities was 2.75 to 1 at December 31, 1998 compared to 2.57 to 1 at
September 30, 1998. The Company's cash and cash equivalents totaled $.72 million
at December 31, 1998. Cash flows from operations were $.7 million for the
quarter ended December 31, 1998, primarily as a result of increased receivable
collections.
The Company uses computer hardware and financial and manufacturing
software that it purchased from third party suppliers. Such suppliers have
confirmed to the Company that such products are Year 2000 compliant.
Consequently, the Company does not expect to incur any significant costs to
become Year 2000 compliant. The Company has no information concerning the Year
2000 compliance status of its suppliers or customers. If any of the Company's
significant suppliers or customers does not successfully and timely become Year
2000 compliant, the Company's business or operations could be adversely
affected. The Company has not yet generated any disaster contingency plans
related to the Year 2000 compliance issue.
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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 8, 1999 By: /s/ Kenneth D. McClain
----------------------- ------------------------
Kenneth D. McClain, President
Date: FEBRUARY 8, 1999 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
<CIK> 0000063686
<NAME> MCCLAIN INDUSTRIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 724,482
<SECURITIES> 0
<RECEIVABLES> 18,899,386
<ALLOWANCES> 0
<INVENTORY> 42,290,752
<CURRENT-ASSETS> 65,730,103
<PP&E> 42,464,708
<DEPRECIATION> 19,559,704
<TOTAL-ASSETS> 97,131,179
<CURRENT-LIABILITIES> 23,928,747
<BONDS> 0
0
0
<COMMON> 4,997,809
<OTHER-SE> 22,398,983
<TOTAL-LIABILITY-AND-EQUITY> 97,131,179
<SALES> 27,156,906
<TOTAL-REVENUES> 27,156,906
<CGS> 22,314,809
<TOTAL-COSTS> 22,314,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 863,076
<INCOME-PRETAX> 850,486
<INCOME-TAX> 289,000
<INCOME-CONTINUING> 561,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561,486
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
