<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 14 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7770
MCCLAIN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1867649
State of Incorporation IRS 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 4, 2000.
Common Stock, No Par Value 4,637,217
- -------------------------- ----------------
Class Number of Shares
1 of 13
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1999 1999
(UNAUDITED)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,854,084 $ 1,908,397
Accounts receivable, (Net) 15,859,134 20,140,166
Inventories 65,019,607 63,281,785
Net investment in sales-type leases, current portion 7,100,000 5,900,000
Prepaid expenses 959,167 237,129
------------ ------------
TOTAL CURRENT ASSETS 90,791,992 91,467,477
------------ ------------
Property, plant and equipment, net 22,997,913 23,236,170
------------ ------------
Net investment in sales-type leases, net of
current portion 13,811,651 12,871,973
------------ ------------
Other assets 2,570,069 2,348,369
------------ ------------
Total other assets 130,171,625 129,923,989
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 23,977,457 $ 21,775,139
Current portion of long-term debt 4,450,000 4,450,000
Accrued expenses 4,541,618 4,682,156
Federal and state income taxes 43,745 1,870,217
------------ ------------
TOTAL CURRENT LIABILITIES 33,012,820 32,777,512
Long-term debt, net of current portion 62,578,021 62,648,684
Product liability 1,136,932 1,406,828
Deferred income taxes 2,200,000 2,200,000
------------ ------------
TOTAL LIABILITIES 98,927,773 99,033,024
------------ ------------
STOCKHOLDERS' INVESTMENT 31,243,852 30,890,965
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $130,171,625 $129,923,989
============ ============
</TABLE>
See notes to condensed consolidated financial statements
2 of 13
<PAGE> 3
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 29,592,618 $ 27,156,906
Cost of sales 24,005,434 22,314,809
------------ ------------
GROSS PROFIT 5,587,184 4,842,097
Selling, general and administrative
expenses 3,929,930 3,446,543
------------ ------------
INCOME FROM OPERATIONS 1,657,254 1,395,554
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (1,258,254) (863,076)
Interest income 468,333 363,939
Other, net (142,063) (45,631)
------------ ------------
OTHER EXPENSE - NET (931,984) (544,768)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 725,270 850,786
Income taxes (benefit) 247,000 289,000
------------ ------------
NET INCOME (LOSS) $ 478,270 $ 561,786
============ ============
Net income (loss) per share:
Basic $ 0.10 $ 0.12
============ ============
Assuming dilution $ 0.10 $ 0.12
============ ============
</TABLE>
See notes to condensed consolidated financial statements
3 of 13
<PAGE> 4
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 478,270 $ 561,486
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 843,953 800,753
Common stock issued to directors for services 7,493 0
Net changes in operating assets and liabilities which provided (used)
cash:
Current assets excluding cash & cash equivalents 621,172 1,746,712
Other assets (1,295,088) (306,331)
Accounts payable 2,202,318 (2,557,315)
Accrued expenses (140,538) 243,404
Federal and state income taxes (1,826,472) (513,994)
----------- -----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES 891,108 (25,285)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (471,987) (324,870)
Payments (made on) received from liabilities assumed upon the
Galion acquisition (269,896) 721,409
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (741,883) 396,539
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal reduction of long term debt (70,663) (1,570,778)
Sale of common stock under stock option plan 0 0
Repurchase of common stock (132,875) 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (203,538) (1,570,778)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (54,313) (1,199,524)
----------- -----------
Cash and cash equivalents, beginning of year 1,908,397 1,924,006
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,854,084 $ 724,482
=========== ===========
</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, 1999
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 period ended December 31, 1999
are not necessarily indicative of the results that may be expected for
the year ending September 30, 2000. 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, 1999.
2. Inventories
Inventories at December 31, 1999 and September 30, 1999 are summarized
as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1999 September 30, 1999
----------------- ------------------
<S> <C> <C>
Materials and Supplies $ 21,660,285 $ 19,416,535
Work in Process 6,016,746 5,555,977
Finished Goods 12,434,607 11,120,913
Chassis 24,907,969 27,188,360
------------- -------------
$ 65,019,607 $ 63,281,785
------------- -------------
</TABLE>
3. Earnings per Common Share and Common Equivalent Share:
Earnings per share are 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, 1999 and 1998 options to purchase 258,337
and 264,464 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, 1999
4. Depreciation
For the three months ended December 31, 1999 and 1998, depreciation
charges were $710,242 and $686,411, respectively. Accumulated
depreciation totaled $21,823,184 and $21,046,447 at December 31, 1999
and September 30, 1999, 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.
McClain E-Z Pack, Inc., as successor to 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, 1999.
Nevertheless, it is not possible to predict the ultimate outcome of any
product liability claim, and any such claim not fully covered by
insurance, as well as adverse publicity from a product claim, could
have a material adverse effect on the Company.
6 of 13
<PAGE> 7
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999
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.
Labor Union Matters
Certain of the Company's hourly employees are represented by various
labor unions pursuant to collective bargaining agreements which expire
between June 2000 and November 2002.
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. The Company continues to vigorously defend
against the unfair labor practice allegations. The Company 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. The Company believes that relations with the hourly
employees at McClain of Georgia are generally satisfactory. There have
been no work stoppages due to labor difficulties.
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.
7 of 13
<PAGE> 8
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999
6. Year 2000 Compliance
The Company did not experience any significant disruptions in its
operations that were related to the Year 2000 issue.
7. Segment Information
During fiscal 1999, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131 "Disclosures About Segments of an
Enterprise and Related Information. This statement requires financial
information to be reported on the basis that management uses for
evaluating segment performance and making operating decisions.
The Company operates in three principal operating segments 1)
Manufactured Equipment, 2) Truck Chassis Sales, and 3) Leasing
Operations. The accounting policies of the reportable segments are the
same as those described in Note 1. Management evaluates the performance
of its operating segments separately to individually monitor the
different factors affecting performance. The Company measures the
performance of its operating segments based on net revenue and
operating income. Income taxes are managed on a Company-wide basis.
Segment performance is also evaluated based on profit or loss before
income taxes.
8 of 13
<PAGE> 9
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999
Information regarding the Company's operating segments follows:
<TABLE>
<CAPTION>
Manufacturing Truck Leasing
Operations Group Operations Totals
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1999
----
Net sales $22,848,062 $6,744,556 $0 $29,592,618
Lease revenues 0 0 1,188,257 1,188,257
Operating income (loss) 1,360,155 60,415 236,684 1,657,254
Interest expense, net 615,737 414,063 228,454 1,258,254
Income (loss) before
income taxes 851,234 (362,648) 236,684 725,270
Identifiable assets 82,595,945 25,310,013 22,265,667 130,171,625
Capital expenditures 471,987 0 0 471,987
Depreciation and
amortization 843,953 0 0 843,953
1998
----
Net sales $19,922,446 $7,234,460 $0 $27,156,906
Lease revenues 0 0 764,649 764,649
Operating income (loss) 895,902 307,183 192,469 1,395,554
Interest expense, net 709,788 0 153,288 863,076
Income (loss) before
income taxes 351,134 307,183 192,469 850,786
Identifiable assets 79,750,713 6,670,251 10,710,215 97,131,179
Capital expenditures 324,870 0 0 324,870
Depreciation and
amortization 800,753 0 0 800,753
</TABLE>
9 of 13
<PAGE> 10
MCCLAIN INDUSTRIES, INC.
ITEM TWO. 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,
1999 1998
------------- ------------------
<S> <C> <C>
Net Sales $29,592,618 $27,156,906
Net Income 478,270 561,786
Net Earnings Per Common
Share (Basic and Diluted) $ .10 $ .12
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
As of As of
December 31, September 30,
1999 1999
------------- --------------
<S> <C> <C>
Working Capital $57,779,172 $ 58,689,965
Total Assets 130,171,625 129,923,989
Long-Term Debt 62,578,021 62,648,684
Stockholder's Investment 31,243,852 30,890,966
Common Shares Outstanding
(Basic and Diluted) 4,637,585 4,673,027
Current Ratio 2.75:1 2:79:1
Long-Term Debt to Equity
Stockholders' Investment 2.03:1 2.03:1
</TABLE>
10 of 13
<PAGE> 11
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,
1999 1998
-------------------------
<S> <C> <C>
Net Sales 100.00% 100.00%
Cost of Sales 81.12 82.17
-------------------------
Gross Profit 18.88 17.83
Selling, General &
Administrative Expenses 13.28 12.69
------------------------
Operating Income 5.60 5.14
Other Expenses (3.15) (2.01)
------------------------
Income before Income Taxes 2.45 3.13
Provision for Income Taxes (0.83) (1.06)
-------------------------
Net Income 1.62% 2.07%
=========================
</TABLE>
11 of 13
<PAGE> 12
MCCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales increased 9.0% to $29.6 million for the quarter ended
December 31, 1999 (Quarter 1999) from $27.2 million for the quarter ended
December 31, 1998 (Quarter 1998). The increase was due primarily to strong sales
of the various refuse equipment products manufactured by the Company's McClain
E-Z Pack subsidiary, which were offset by a slight reduction in the sales of
McClain Truck Group. Sales for McClain E-Z Pack increased 15.5% or $2.4 million
for the Quarter 1999 over the Quarter 1998. While McClain Truck sales decreased
7.3% or $0.5 million during the Quarter 1999 compared to the Quarter 1998. Sales
of the Company's other product lines were flat for the Quarter 1999 compared to
the Quarter 1998. The sales of the McClain Truck division accounted for 22.8% of
the Company's sales for the Quarter 1999 compared to 26.7% of the Company's
sales for the Quarter 1998.
Cost of goods sold decreased to 81.12% for the Quarter 1999 from 82.17%
for the Quarter 1998. The gross profit margin on manufactured products increased
to 22.9% for the Quarter 1999 compared to 22.8% for the Quarter 1998. The gross
profit margin for McClain Truck increased to 5.4% for the Quarter 1999 from 4.9%
for the Quarter 1998.
Selling, General & Administrative Expenses increased slightly to 13.28%
of net sales for the Quarter 1999 from 12.6% of net sales for the Quarter 1998.
The Company had working capital of $57.9 million at December 31, 1999
compared to $58.7 million at September 30, 1999. The ratio of current assets to
current liabilities was 2.75:1 at December 31, 1999 and 2.79:1 at September 30,
1999. The Company's cash and cash equivalents totaled $1.9 million at December
31, 1999. Cash flows provided by operations were $0.9 million for the three
months ended December 31, 1999.
12 of 13
<PAGE> 13
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 authorized.
McCLAIN INDUSTRIES, INC.
Date: February 4, 2000 By: Kenneth D. McClain
--------------------------- ---------------------------
Kenneth D. McClain, President
Date: February 4, 2000 By: Mark S. Mikelait
--------------------------- ---------------------------
Mark S. Mikelait, Treasurer
13 of 13
<PAGE> 14
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000063686
<NAME> MCCLAIN INDUSTRIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,854,084
<SECURITIES> 0
<RECEIVABLES> 15,859,134
<ALLOWANCES> 0
<INVENTORY> 65,019,607
<CURRENT-ASSETS> 90,791,992
<PP&E> 44,821,097
<DEPRECIATION> 21,823,184
<TOTAL-ASSETS> 130,171,625
<CURRENT-LIABILITIES> 33,012,820
<BONDS> 0
0
0
<COMMON> 4,746,148
<OTHER-SE> 26,497,704
<TOTAL-LIABILITY-AND-EQUITY> 130,171,625
<SALES> 29,592,618
<TOTAL-REVENUES> 29,592,618
<CGS> 24,005,434
<TOTAL-COSTS> 24,005,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,258,254
<INCOME-PRETAX> 725,270
<INCOME-TAX> 247,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478,270
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
