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 June 30,December 31, 2001
[ ] 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)(586) 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 13, 2001.February 6, 2002.
Common Stock, No Par Value 4,511,4394,534,206
- --------------------------------------------------------------------------------
Class Number of Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCLAINMCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30DECEMBER 31, SEPTEMBER 30,
2001 20002001
(UNAUDITED)
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 1,369,990454,870 $ 1,401,810763,635
Accounts receivable, (Net) 17,319,391 20,292,6479,417,676 11,818,760
Inventories 38,260,270 52,031,11232,920,550 36,729,464
Net investment in sales-type leases, current portion 9,000,000 7,500,0008,100,000 10,600,000
Prepaid expenses 560,012 238,4041,296,822 142,539
Refundable federal and state income taxes 2,217,839 587,6122,773,846 2,733,572
------------ ------------
TOTAL CURRENT ASSETS 68,727,502 82,051,58554,963,764 62,787,970
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 21,340,607 23,298,83221,179,131 21,620,641
------------ ------------
NET INVESTMENT IN SALES-TYPE LEASES, NET OF
CURRENT PORTION 17,517,409 16,486,44418,103,932 17,200,109
------------ ------------
OTHER ASSETS 1,512,903 1,848,052848,777 1,037,555
------------ ------------
TOTAL OTHER ASSETS 109,098,421 123,684,91395,095,604 102,646,275
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 8,962,5278,806,511 $ 14,523,57311,555,975
Current portion of long-term debt 65,460,499 4,200,00055,349,975 59,415,504
Accrued expenses 4,246,563 3,740,4523,994,320 4,225,970
------------ ------------
TOTAL CURRENT LIABILITIES 78,669,589 22,464,02568,150,806 75,197,449
Long-term debt, net of current portion 0 67,476,1170
Product liability 701,803 1,182,315530,715 897,163
Deferred income taxes 2,355,000 2,355,0001,546,000 1,546,000
------------ ------------
TOTAL LIABILITIES 81,726,392 93,477,45770,227,521 77,640,612
------------ ------------
STOCKHOLDERS' INVESTMENT 27,372,029 30,207,45624,868,083 25,005,663
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $109,098,421 $123,684,913$ 95,095,604 $102,646,275
============ ============
See notes to condensed consolidated financial statements
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McCLAINMCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
NINE MONTHS ENDED
JUNE 30 JUNE 30,
---------------------------------- ----------------------------------DECEMBER 31,
---------------------------------------------------
2001 2000
2001 2000
------------- ------------- ------------- ------------------------------------ -----------------------
Net sales $ 26,767,56620,087,599 $ 40,634,125 $ 72,603,887 $ 108,560,82321,087,686
Cost of sales 22,824,779 33,826,791 61,526,096 89,641,340
Inventory writedown 0 0 700,000 0
------------- ------------- ------------- -------------17,031,032 17,928,298
------------ ------------
GROSS PROFIT 3,942,787 6,807,334 10,377,791 18,919,4833,056,567 3,159,387
Selling, general and administrative
expenses 3,778,242 5,033,101 12,251,872 13,214,543
Restructuring charge 0 0 400,000 0
------------- ------------- ------------- -------------3,122,693 4,086,270
------------ ------------
INCOME (LOSS) FROM OPERATIONS 164,545 1,774,233 (2,274,081) 5,704,940
------------- ------------- ------------- -------------(66,126) (926,883)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (1,362,938) (1,701,772) (4,213,685) (4,395,821)(886,650) (1,572,364)
Interest income 794,956 591,799 2,433,577 1,586,720634,256 790,032
Other, net 145,551 (136,427) 84,513 (432,122)
------------- ------------- ------------- -------------87,342 8,350
------------ ------------
OTHER EXPENSE - NET (422,431) (1,246,400) (1,695,595) (3,241,223)
------------- ------------- ------------- -------------(165,052) (773,982)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (257,886) 527,833 (3,969,676) 2,463,717(231,178) (1,700,865)
Income taxes (benefit) (88,000) 180,000 (1,350,000) 838,000
------------- ------------- ------------- -------------(78,600) (578,000)
------------ ------------
NET INCOME (LOSS) $ (169,886)(152,578) $ 347,833 $ (2,619,676) $ 1,625,717
============= ============= ============= =============(1,122,865)
============ ============
Net income (loss) per share:
Basic $ (0.04)(0.03) $ 0.08 $ (0.58) $ 0.36
============= ============= ============= =============(0.25)
============ ============
Assuming dilution $ (0.04)(0.03) $ 0.08 $ (0.58) $ 0.36
============= ============= ============= =============(0.25)
============ ============
See notes to condensed consolidated financial statements
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McCLAINMCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
NINETHREE MONTHS ENDED
JUNE 30,
------------------------------------DECEMBER 31,
-------------------------------------
2001 2000
------------ -------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,619,676) $ 1,625,717(152,578) $(1,122,865)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation and amortization 2,512,184 2,542,088730,589 832,516
Common stock issued to directors for services 25,487 23,97714,998 8,993
Net changes in operating assets and liabilities
which provided (used) cash:
currentCurrent assets excluding cash & cash equivalents 14,922,490 8,713,0655,055,715 9,612,151
Other assets (1,096,947) (2,447,543)1,745,931 (1,244,163)
Accounts payable (5,561,046) (11,378,020)(2,749,464) (1,083,802)
Accrued expenses 506,111 (313,300)(231,650) 607,324
Federal and state income taxes (1,630,227) (1,180,158)
------------ ------------(40,274) 641,105
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,058,376 (2,414,174)
------------ ------------4,373,267 8,251,258
----------- -----------
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (152,828) (2,102,859)(250,055) (23,166)
Payments (made on) received from liabilities assumed upon the
Galion acquisition (480,512) (124,735)
------------ ------------(366,448) (213,160)
----------- -----------
NET CASH (USED IN)USED IN INVESTING ACTIVITIES (633,340) (2,227,594)
------------ ------------(616,503) (236,326)
----------- -----------
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal increase (decrease)reduction of long term debt (6,215,618) 4,815,276(4,065,529) (7,663,340)
Repurchase of common stock -- (241,238)
(512,875)
------------ ----------------------- -----------
NET CASH PROVIDED BY (USED IN)USED IN FINANCING ACTIVITIES (6,456,856) 4,302,401
------------ ------------(4,065,529) (7,904,578)
----------- -----------
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,820) (339,367)
------------ ------------(308,765) 110,354
----------- -----------
Cash and cash equivalents, beginning of periodyear 763,635 1,401,810
1,908,397
------------ ----------------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIODYEAR $ 1,369,990454,870 $ 1,569,030
============ ============1,512,164
=========== ===========
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINETHREE MONTHS ENDED JUNE 30,DECEMBER 31, 2001
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 only of normal recurring items and the operating charge described in note 7,
considered necessary for a fair presentation have been included.
Operating results for the nine-monththree-month period ended June 30,December 31, 2001
are not necessarily indicative of the results that may be expected for
the year ending September 30, 2001.2002. 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, 2000.2001.
2. Inventories
Inventories at June 30,December 31, 2001 and September 30, 20002001 are summarized
as follows:
(Unaudited)
June 30,December 31, 2001 September 30, 2000
-------------------------------------------------2001
-----------------------------------------------
Materials and Supplies $ 15,050,83915,196,697 $ 23,918,30016,136,116
Work in Process 5,000,000 5,521,7544,300,000 4,306,681
Finished Goods 11,000,959 11,146,4288,344,853 8,583,582
Chassis 7,208,472 11,444,6305,079,000 7,703,085
--------------- ----------------------------
$ 38,260,27032,920,550 $ 52,031,112
--------------- ---------------36,729,464
=============== =============
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 periods, includingyear. 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 for the periods ended June 30,equivalents. At December 31, 2001 and 2000 options to purchase 146,983155,331
and 239,665146,983 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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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINETHREE MONTHS ENDED JUNE 30,DECEMBER 31, 2001
4. Depreciation
For the ninethree months ended June 30,December 31, 2001 and 2000, depreciation
charges were $2,111,053$691,565 and $2,140,958,$698,805, respectively. Accumulated
depreciation totaled $25,120,241$26,076,890 and $23,259,276$25,353,719 at June 30,December 31, 2001
and September 30, 2000,2001, respectively.
5. Debt
The Company's debt agreements contain certain restrictive covenants
that require the Company to, among other things, meet certain net worth
and working capital requirements along with maintaining various
financial ratios. As the result of non compliance with certain of the
financial covenants, the Company entered into a forbearance agreement
with its principal lending institution in June of 2001 and expiring
August 31, 2001. Accordingly, the debt related to these agreements has
been shown as a current liability.
6. 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.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001
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 June 30,December 31, 2001.
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
MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2001
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 NovemberSeptember 2002 and June 2003.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001
On February 23,In 1995, a local union filed unfair labor practices against the
Company's Macon, Georgia plant, which were subsequently upheld by the
National Labor Relations Board (NLRB) conducted an election in response to a petition filed by aand the U.S. Court of Appeals.
The 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 variousadditional unfair labor practices which affectedin 1996. The
NLRB seeks back pay, reinstatement and an order requiring transfer of
work. The Company is currently negotiating with the election
results, andNLRB in an effort
to reach a settlement of all of these matters. There can be no
assurance that these claims will be settled or that the challenged ballots should be counted. On October
17, 1996,amounts awarded
to 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 doesunion will not
believe a final decision upholding the Union certification or the
unfair labor practice charges would have a material adverse effectimpact 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. Other Matters
The Company recorded a $1,100,000 charge against operations in March
2001 primarily related to the reduction of certain truck chassis to
their estimated realizable value and for various severance packages for
terminated employees.
8.6. Segment Information
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.
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McCLAINMCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINETHREE MONTHS ENDED JUNE 30,DECEMBER 31, 2001
Information regarding the Company's operating segments follows for the three
months ended June 30, 2001 and 2000 follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------ ------------ ------------ ------------------------------- ------------------ ----------------- ------------------
2001
Net sales $ 18,361,45017,359,729 $ 8,406,1162,727,870 $ 0-- $ 26,767,56620,087,599
Lease revenues $ 0 0 2,071,761 2,071,761-- -- 1,864,552 1,864,552
Operating income (loss) $ (256,283) 245,122 175,706 164,545(358,131) (12,282) 304,287 (66,126)
Interest expense, net $ 774,361 211,124 377,453 1,362,938429,156 127,448 330,046 886,650
Income (loss) before
income taxes $ (600,667) 30,450 312,331 (257,886)(401,926) (140,421) 311,169 (231,178)
Identifiable assets $ 75,308,476 7,278,536 26,511,409 109,098,42163,577,410 7,181,013 24,337,181 95,095,604
Capital expenditures $ 152,828 0 0 152,828250,055 -- -- 250,055
Depreciation and
amortization $ 846,212 0 0 846,212730,589 -- -- 730,589
------------- ------------- ------------- -------------
2000
Net sales $ 30,934,53915,446,670 $ 9,699,5865,641,016 $ 0-- $ 40,634,12521,087,686
Lease revenues $ 0 0 1,516,119 1,516,119-- -- 1,798,609 1,798,609
Operating income $ 1,711,698 (176,994) 239,529 1,774,233(loss) (1,090,865) (192,896) 356,877 (926,883)
Interest expense, net $ 861,161 457,879 382,732 1,701,772933,386 250,870 388,108 1,572,364
Income (loss) before
income taxes $ 1,029,865 (643,874) 141,842 527,833(1,042,382) (437,360) 356,877 (1,122,865)
Identifiable assets $ 81,706,922 18,385,784 22,787,164 122,879,87077,408,495 11,434,069 25,134,261 113,976,825
Capital expenditures $ 2,102,859 0 0 2,102,85923,166 -- -- 23,166
Depreciation and
amortization $ 850,553 0 0 850,553832,516 -- -- 832,516
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McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001
Information regarding the Company's operating segments follows for the nine
months ended June 30, 2001 and 2000 follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------- ------------- ------------- -------------
2001
Net sales $ 52,660,079 $ 19,943,808 $ 0 $ 72,603,887
Lease revenues $ 0 0 5,786,757 5,786,757
Operating income (loss) $ (2,424,787) (673,685) 824,391 (2,274,081)
Interest expense, net $ 2,369,966 657,309 1,186,410 4,213,685
Income (loss) before
income taxes $ (3,593,556) (1,337,136) 961,016 (3,969,676)
Identifiable assets $ 75,302,476 7,278,536 26,517,409 109,098,421
Capital expenditures $ 152,828 0 0 152,828
Depreciation and
amortization $ 2,512,184 0 0 2,512,184
2000
Net sales $ 81,848,439 $ 26,712,384 $ 0 $ 108,560,823
Lease revenues $ 0 0 4,154,626 4,154,626
Operating income (loss) $ 5,303,398 (235,401) 636,943 5,704,940
Interest expense, net $ 2,185,373 1,344,270 866,178 4,395,821
Income (loss) before
income taxes $ 3,524,574 (1,606,672) 545,815 2,463,717
Identifiable assets $ 81,706,922 18,385,784 22,787,164 122,879,870
Capital expenditures $ 2,102,859 0 0 2,102,859
Depreciation and
amortization $ 2,542,088 0 0 2,542,088
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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:
(Unaudited)
(Unaudited)
Three Months Ended
Nine Months Ended
June 30, June 30,December 31,
2001 2000
2001 2000
---- ---- ---- --------------------- ---------------
Net Sales $26,767,566 $40,634,125 $72,603,887 $108,560,823$20,087,599 $21,087,686
Net Income (Loss) (169,886) 347,883 (2,619,676) 1,625,717(152,578) (1,122,865)
Net Earnings (Loss) Per Common
Share (Basic and Diluted) $ (.04) .08(.03) $ (.58) $ .36(.25)
(Unaudited)
As of As of
June 30,December 31, September 30,
2001 2000
------------ ------------2001
------------------ --------------
Working Capital (Deficit) $ (9,942,087) $ 59,587,560$(13,187,042) $(12,409,479)
Total Assets 109,098,421 123,684,91395,095,604 102,646,275
Long-Term Debt 0 67,476,117
Stockholders'0
Stockholder's Investment 27,372,029 30,207,45624,868,083 25,005,663
Common shares outstandingShares Outstanding
(Basic and Diluted) 4,511,4394,534,206 4,565,661
Current Ratio 0.87:0.81:1 3:65:0:83:1
Funded Debt to Equity
Stockholders' Investment 2.39:2.23:1 2.23:2.28:1
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MCCLAIN INDUSTRIES, INC.
The following table presents, as a percentage of net sales, certain selected
financial data for the Company for the periods indicated:
(Unaudited)
(Unaudited)
Three Months Ended
Nine Months Ended
June 30, June 30,December 31,
2001 2000
2001 2000
------------------------ -------------------------------------------------
Net Sales 100.00% 100.00%
100.00% 100.00%
Cost of Sales 85.28 83.25 84.74 82.57
Inventory Writedown 0.00 0.00 0.96 0.00
------ ------ ------ ------84.78 85.02
-------------------------
Gross Profit 14.72 16.75 14.30 17.4315.22 14.98
Selling, General &
Administrative Expenses 14.11 12.38 16.88 12.17
Restructuring charge 0.00 0.00 0.55 0.00
------ ------ ------ ------15.55 19.38
-------------------------
Operating Income (Loss) (0.61) 4.37 (3.13) 5.26(0.33) (4.40)
Other Expenses (1.58) (3.07) (2.34) (2.99)
------ ------ ------ ------(0.82) (3.67)
-------------------------
Income (Loss) before Income Taxes (0.97) 1.30 (5.47) 2.27(1.15) (8.07)
Income (Taxes) Benefit 0.33 (0.44) 1.86 (0.77)
------ ------ ------ ------Taxes (Benefit) (0.39) (2.74)
-------------------------
Net Income (Loss) (0.64)(0.76)% 0.86% (3.61)(5.33)%
1.50%
------ ------ ------ ------=========================
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MCCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales decreased 34.1%4.7% to $26.8$20.1 million for the quarter ended
June
30,December 31, 2001 (Quarter 2001) from $40.6$21.1 million for the quarter ended
June 30,December 31, 2000 (Quarter 2000). The decrease was due primarily to slumpingreduced
truck sales and the continued limited capital expenditures by the national
hauling companies resulting from the slowdown in the manufacturing sector of the economy.continuing difficult economic environment.
McClain E-Z Pack's sales decreased 39.4%increased 5.4% or $10.0$0.7 million during the Quarter 2001
compared to the Quarter 2000 while McClain Truck sales decreased 15.6%50.4% or $1.2$2.0
million during the Quarter 2001 compared to the Quarter 2000. These decreases were the result
of the current economic slowdown and limited capital expenditures in the hauling
industry. Sales of the
Company's dump body products decreased by 24.4%4.6% or $1.1$0.13 million for the Quarter
2001 compared to the Quarter 2000 due to the continued slump and excess
production capacity in the dump body markets. The sales of the McClain Truck
division accounted for 31.0%9.8% of the Company's sales for the Quarter 2001 compared
to 18.75%18.8% of the Company's sales for the Quarter 2000.
Cost of goods sold increaseddecreased to 85.3%84.79% for the Quarter 2001 from 83.3%85.02%
for the Quarter 2000 due to the lower sales volume and an increase in the
percentage of chassis sales to total sales.2000. The gross profit margin on manufactured products decreased
to 17.65%16.7% for the Quarter 2001 compared to 20.4%20.3% for the Quarter 2000 due primarilyto
increased discounting related to the lower sales volume. Theslow economy. McClain Truck
division had a gross
profitloss of 8.7%1.11% for the Quarter 2001 compared to a gross loss of 1.4%2.96% for the
Quarter 2000.2000 primarily as a result of the liquidation of certain stale chassis
from inventory.
Selling, General & Administrative Expenses increaseddecreased to 14.11%15.54% of net
sales for the Quarter 2001 from 12.38%19.38% of net sales for the Quarter 2000 due
primarilyas the
lowerCompany continued to bring operating costs in line with the current sales
volume.
The Company had a Net Lossworking capital deficit of 0.64% of sales for the Quarter$13.2 million at December
31, 2001 compared to a Net Income 0.86% of sales for the Quarter 2000. The loss was due
primarily to reduced sales volumes throughout the Company's product lines.
Net sales decreased 33.1% to $72.6 million for the nine months ended
June 30, 2001 (nine months 2001) from $108.6 million for the nine months ended
June 30, 2000 (nine months 2000). The decrease was due primarily to slumping
sales resulting from the slowdown in the economy. McClain E-Z Pack's sales
decreased 35.0% or $23.3 million during the nine months 2001 compared to the
nine months 2000 while McClain Truck sales decreased 32.2% or $7.0 million
during the nine months 2001 compared to the nine months 2000. These decreases
were the result of the continuing economic slowdown and limited capital
expenditures in the hauling industry. Sales of the Company's dump body products
decreased by 30.0% or $4.5 million for the nine months 2001 compared to the nine
months 2000 due to the continued slump and excess production capacity in the
dump body markets. The sales of the McClain Truck division accounted for 25.0%
of the Company's sales for the nine months 2001 compared to 19.7% of the
Company's sales for the nine months 2000.
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Cost of goods sold increased to 84.7% for the nine months 2001 from
82.6% for the nine months 2000 due to the lower sales volume and an increase in
the percentage of chassis sales to total sales. The gross profit margin on
manufactured products decreased to 19.2% for the nine months 2001 compared to
22.5% for the nine months 2000. The McClain Truck division had a gross loss of
.51% for the nine months 2001 compared to a gross profit of 2.3% for the nine
months 2000.
Selling, General & Administrative Expenses increased to 16.9% of net
sales for the nine months 2001 from 12.17% of net sales for the nine months 2000
as a result of the lower sales volume.
The Company had a Net Loss of 3.61% of sales for the nine months 2001
compared to a Net Income of 1.50% of sales for the nine months 2000. The loss
was due primarily to reduced sales volumes throughout the Company's product
lines and a $1.1 million charge taken to operations in March 2001. This charge
was primarily related to the reduction of certain truck chassis to their
estimated realizable value and for various severance packages for terminated
employees.
The Company had negative working capital of $10.0 million at June 30,
2001 compared to positive working capital of $59.6$12.4 million at September 30, 2000
(see subsequent discussion regarding the Company's debt agreements).2001. The ratio of current
assets to current liabilities was 0.87:0.81:1 at June 30,December 31, 2001 and 3.65:0.84:1 at
September 30, 2000.2001. The Company's cash and cash equivalents totaled $1.4$0.5 million
at June 30,December 31, 2001. Cash flows provided by operations were $7.1$4.4 million for
the ninethree months ended June 30,December 31, 2001.
The Company's debt agreements contain certain restrictive covenants
that require the Company to, among other things, meet certain net worth and
working capital requirements along with maintaining various financial ratios. As
the result of non compliance with certain of the financial covenants, the
Company entered into a forbearance agreement with its principal lending
institution in June of 2001 and expiring August 31, 2001. This agreement was
extended to October 31, 2001 and further extended through January 31, 2002.
Under the most recent amended and extended forbearance agreement, the line of
credit is capped at $22 million, effective December 4, 2001, interest will
accrue at the default rate of prime plus 2 1/2%, the leasing credit limit is
reduced to the lesser of $19 million or the borrowing base, as defined, and the
Company has been placed under a dominion of funds arrangement. Accordingly, the
debt related to these
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agreements has been shown as a current liability. The Company
is currentlyManagement's plans to resolve
this matter include, exploring other financing options while it negotiatescontinuing to
negotiate with its principal lender to extend the forbearance period or amend
its current agreements to among other things reset those covenants that are
currently out of compliance and extend the maturity dates on certain of its
revolving credit agreements.agreements, continuing to evaluate the need for additional
personnel reductions, analyzing all plant operations and product lines to
determine the viability of each facility, and continuing inventory reductions to
match forecasted operating levels. While management believes it will be
successful in its negotiations with it principal lender or in obtaining an
alternative financing source, that outcome is not guaranteed.certain. If either of these
options are ultimately unavailable to the Company and the principal lender
exercises it right to accelerate the repayment of the outstanding debt, the
Company would be unable to pay the amount outstanding. 14 of 16
15The revolving credit
agreements expire in May 2002.
Management believes, that if its principal lender extends the
forbearance period, the negotiations discussed above are successful or the
Company secures an alternative financing source, that the Company's cash flow,
together with the credit available to it under existing debt facilities, will
provide it with adequate cash for its working capital needs for the next 12
months (For further information on the Company's debt agreements, 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, 2000)2001). If
these options are ultimately unavailable to the Company and the principal lender
exercises it right to accelerate the repayment of the outstanding debt, the
Company would be unable to pay the amount outstanding.
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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: August 13, 2001February 6, 2002 By: /s/ Kenneth D. McClain
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Kenneth D. McClain, President
Date: August 13, 2001February 6, 2002 By: /s/ Mark S. Mikelait
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Mark S. Mikelait, Treasurer
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