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 DecemberMarch 31, 20012002
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-7770
MCCLAINMcCLAIN 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
(586)(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 ._X_. No .
---- ----___.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of February 6,May 3, 2002.
Common Stock, No Par Value 4,534,2064,534,170
- --------------------------------------------------------------------------------
Class Number of Shares
1 of 1316
PART I.1. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAINMcCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBERMARCH 31 SEPTEMBER 30,
20012002 2001
(UNAUDITED)
------------ ------------------------------------ ----------------------
CURRENT ASSETS
Cash and cash equivalents $ 454,870 $ 763,635$723,057 $763,635
Accounts receivable, (Net) 9,417,6769,500,093 11,818,760
Inventories 32,920,55030,489,373 36,729,464
Net investment in sales-type leases, current portion 8,100,000 10,600,000
Prepaid expenses 1,296,822697,164 142,539
Refundable federal and state income taxes 2,773,8462,716,299 2,733,572
------------ ------------------------------------ -----------------------
TOTAL CURRENT ASSETS 54,963,76452,225,986 62,787,970
------------ ------------------------------------ -----------------------
PROPERTY, PLANT AND EQUIPMENT, NET 21,179,13120,634,457 21,620,641
------------ ------------------------------------ -----------------------
NET INVESTMENT IN SALES-TYPE LEASES, NET OF
CURRENT PORTION 18,103,93215,823,389 17,200,109
------------ ------------------------------------ -----------------------
OTHER ASSETS 848,777658,175 1,037,555
------------ ------------------------------------ -----------------------
TOTAL OTHER ASSETS 95,095,60489,342,007 102,646,275
============ ==================================== =======================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 8,806,511 $ 11,555,975$7,900,368 $11,555,975
Current portion of long-term debt 55,349,97551,741,644 59,415,504
Accrued expenses 3,994,3204,095,453 4,225,970
------------ ------------------------------------ -----------------------
TOTAL CURRENT LIABILITIES 68,150,80663,737,465 75,197,449
Long-term debt, net of current portion 0 0
Product liability 530,715502,531 897,163
Deferred income taxes 1,042,000 1,546,000
1,546,000
------------ ------------------------------------ -----------------------
TOTAL LIABILITIES 70,227,52165,281,996 77,640,612
------------ ------------------------------------ -----------------------
STOCKHOLDERS' INVESTMENT 24,868,08324,060,011 25,005,663
------------ ------------------------------------ -----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 95,095,604$89,342,007 $102,646,275
============ ==================================== =======================
See notes to condensed consolidated financial statements
2 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED DECEMBERSIX MONTHS ENDED
MARCH 31, ---------------------------------------------------MARCH 31,
------------------------------------------- ---------------------------------------
2002 2001 2000
----------------------- -----------------------2002 2001
----------------- ----------------- ----------------- -----------------
Net sales $ 20,087,59916,776,715 $ 21,087,68624,748,635 $ 36,864,314 $ 45,836,321
Cost of sales 17,031,032 17,928,298
------------ ------------14,756,339 20,773,019 31,787,371 38,701,317
Inventory writedown - 700,000 - 700,000
----------------- ----------------- ----------------- -----------------
GROSS PROFIT 3,056,567 3,159,3872,020,376 3,275,616 5,076,943 6,435,004
Selling, general and administrative
expenses 3,122,693 4,086,270
------------ ------------
INCOME (LOSS)3,105,432 4,387,360 6,228,125 8,473,630
Restructuring charge - 400,000 - 400,000
----------------- ----------------- ----------------- -----------------
LOSS FROM OPERATIONS (66,126) (926,883)
------------ ------------(1,085,056) (1,511,744) (1,151,182) (2,438,626)
----------------- ----------------- ----------------- -----------------
OTHER INCOME (EXPENSE)
Interest expense (886,650) (1,572,364)(886,751) (1,278,383) (1,773,401) (2,850,747)
Interest income 634,256 790,032728,871 848,589 1,363,127 1,638,621
Other, net 87,342 8,350
------------ ------------(8,034) (69,388) 79,308 (61,038)
----------------- ----------------- ----------------- -----------------
OTHER EXPENSE - NET (165,052) (773,982)
------------ ------------
INCOME (LOSS)(165,914) (499,182) (330,966) (1,273,164)
----------------- ----------------- ----------------- -----------------
LOSS BEFORE INCOME TAXES (231,178) (1,700,865)BENEFIT (1,250,970) (2,010,926) (1,482,148) (3,711,790)
Income taxes (benefit) (78,600) (578,000)
------------ ------------tax benefit (425,400) (684,000) (504,000) (1,262,000)
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ (152,578) $ (1,122,865)
============ ============LOSS (825,570) (1,326,926) (978,148) (2,449,790)
================= ================= ================= =================
Net income (loss)loss per share:
Basic and diluted $ (0.03)(0.19) $ (0.25)
============ ============
Assuming dilution(0.29) $ (0.03)(0.22) $ (0.25)
============ ============(0.54)
================= ================= ================= =================
See notes to condensed consolidated financial statements
3 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
THREESIX MONTHS ENDED
DECEMBERMARCH 31,
--------------------------------------------------------------------------------------
2002 2001
2000
------------ ------------------------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)loss $ (152,578) $(1,122,865)(978,148) $ (2,449,790)
Adjustments to reconcile net income (loss)loss to
net cash provided by operating activities
Depreciation and amortization 730,589 832,5161,432,641 1,665,972
Deferred Income Tax Benefit (504,000) -
Common stock issued to directors for services 14,998 8,99332,496 17,987
Net changes in operating assets and liabilities
which provided (used) cash:
Current assets excluding cash & cash equivalents 5,055,715 9,612,1518,004,133 8,471,810
Other assets 1,745,931 (1,244,163)4,178,052 1,192,251
Accounts payable (2,749,464) (1,083,802)(3,655,563) (2,455,783)
Accrued expenses (231,650) 607,324(130,517) 781,054
Federal and state income taxes (40,274) 641,105
----------- -----------17,273 (1,331,250)
------------------------ ----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,373,267 8,251,258
----------- -----------
----------- -----------8,396,367 5,892,251
------------------------ ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (250,055) (23,166)(368,453) (37,838)
Payments (made on) received from liabilities assumed upon the
Galion acquisition (366,448) (213,160)
----------- -----------(394,632) (242,100)
------------------------ ----------------------
NET CASH USED IN INVESTING ACTIVITIES (616,503) (236,326)
----------- -----------
----------- -----------(763,085) (279,938)
------------------------ ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal reduction of long term debt (4,065,529) (7,663,340)(7,673,860) (5,037,087)
Repurchase of common stock --- (241,238)
----------- ----------------------------------- ----------------------
NET CASH USED IN FINANCING ACTIVITIES (4,065,529) (7,904,578)
----------- -----------
----------- -----------(7,673,860) (5,278,325)
------------------------ ----------------------
NET INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (308,765) 110,354
----------- -----------(40,578) 333,988
------------------------ ----------------------
Cash and cash equivalents, beginning of yearperiod 763,635 1,401,810
----------- ----------------------------------- ----------------------
CASH AND CASH EQUIVALENTS, END OF YEARPERIOD $ 454,870723,057 $ 1,512,164
=========== ===========1,735,798
======================== ======================
See notes to condensed consolidated financial statements
4 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREESIX MONTHS ENDED DECEMBERMARCH 31, 20012002
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-monthsix-month period ended DecemberMarch 31, 20012002 are not
necessarily indicative of the results that may be expected for the year
ending September 30, 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,
2001.
2. Inventories
Inventories at DecemberMarch 31, 20012002 and September 30, 2001 are summarized as
follows:
(Unaudited)
DecemberMarch 31, 20012002 September 30, 2001
------------------------------------------------------------- ------------------
Materials and Supplies $ 15,196,69715,689,373 $ 16,136,116
Work in Process 4,300,000 4,306,681
Finished Goods 8,344,8535,800,000 8,583,582
Chassis 5,079,0004,700,000 7,703,085
---------------------------- -------------
$ 32,920,55030,489,373 $ 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 year. The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", effective September 30, 1998. This statement requiresperiods, including a dual
presentation and reconciliation of "basic" and "diluted" per share
amounts. Diluted reflects the potential dilution of all common stock
equivalents. At Decemberequivalents for the periods ended March 31, 20012002 and 20002001 options to
purchase 155,331177,000 and 146,983 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.
5 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREESIX MONTHS ENDED DECEMBERMARCH 31, 20012002
4. Depreciation
For the threesix months ended DecemberMarch 31, 20012002 and 2000,2001, depreciation charges
were $691,565$1,354,637 and $698,805,$1,398,552, respectively. Accumulated depreciation
totaled $26,076,890$26,780,336 and $25,353,719 at DecemberMarch 31, 20012002 and September 30,
2001, 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 DecemberMarch 31, 2001.2002.
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 1316
MCCLAINMcCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREESIX MONTHS ENDED DECEMBERMARCH 31, 20012002
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 September 2002 and June 2003.
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) and the U.S. Court of Appeals.
The local union filed additional unfair labor practices in 1996. The
NLRB seeks back pay, reinstatement and an order requiring transfer of
work. The Company reached an agreement with the NLRB regarding the back
pay and reinstatement issues in February 2002. The agreement calls for
the Company to make payments of approximately $600,000 in quarterly
installments over three years, beginning in March of 2002. A reserve
was set up at September 30, 2001 to cover the costs of this agreement.
The Company is currently negotiating with the NLRB in an effort to
reach a settlement of all of these matters.the remaining matter. There can be no assurance
that these claimsthat claim will be settled or that theany amounts awarded to the
union will not have a material adverse impact 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.
7 of 16
McCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2002
6. 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.
7. 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.
78 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBERMARCH 31, 20012002
Information regarding the Company's operating segments follows for the three
months ended March 31, 2002 and 2001 follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------------ ------------------------------------- ------------------- ----------------- -------------------------------------
20012002
----
Net sales $ 17,359,729 $ 2,727,870 $ -- $ 20,087,599$14,440,788 $2,335,927 $0 $16,776,715
Lease revenues -- -- 1,864,552 1,864,5520 0 1,782,557 1,782,557
Operating income (loss) (358,131) (12,282) 304,287 (66,126)-1,370,482 41,958 243,468 -1,085,056
Interest expense, net 429,156 127,448 330,046 886,650438,691 101,670 346,390 886,751
Income (loss) before
income taxes (401,926) (140,421) 311,169 (231,178)-1,427,102 -60,454 236,586 -1,250,970
Identifiable assets 63,577,410 7,181,013 24,337,181 95,095,60460,284,624 5,133,994 23,923,389 89,342,007
Capital expenditures 250,055 -- -- 250,055118,398 0 0 118,398
Depreciation and
amortization 730,589 -- -- 730,589
------------- ------------- ------------- -------------
2000702,052 0 0 702,052
2001
----
Net sales $ 15,446,670 $ 5,641,016 $ -- $ 21,087,686$18,851,958 $5,896,677 $0 $24,748,635
Lease revenues -- -- 1,798,609 1,798,6090 0 1,925,387 1,925,387
Operating income (loss) (1,090,865) (192,896) 356,877 (926,883)-1,744,594 -58,958 291,808 -1,511,744
Interest expense, net 933,386 250,870 388,108 1,572,364662,219 195,315 420,849 1,278,383
Income (loss) before
income taxes (1,042,382) (437,360) 356,877 (1,122,865)-2,039,460 -263,274 291,808 -2,010,926
Identifiable assets 77,408,495 11,434,069 25,134,261 113,976,82579,167,360 11,930,990 22,959,606 114,057,956
Capital expenditures 23,166 -- -- 23,16614,672 0 0 14,672
Depreciation and
amortization 832,516 -- -- 832,516833,456 0 0 833,456
89 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2002
Information regarding the Company's operating segments follows for the six
months ended March 31, 2002 and 2001 follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------------- ------------------- ----------------- -------------------
2002
----
Net sales $31,800,517 $5,063,797 $0 $36,864,314
Lease revenues 0 0 3,647,109 3,647,109
Operating income (loss) -1,829,543 29,676 648,685 -1,151,182
Interest expense, net 867,847 229,118 676,436 1,773,401
Income (loss) before
income taxes -1,829,028 -200,875 547,755 -1,482,148
Identifiable assets 60,284,624 5,133,994 23,923,389 89,342,007
Capital expenditures 368,453 0 0 368,453
Depreciation and
amortization 1,432,641 0 0 1,432,641
------------------- ------------------- ----------------- -------------------
2001
----
Net sales $34,298,629 $11,537,692 $0 $45,836,321
Lease revenues 0 0 3,714,996 3,714,996
Operating income (loss) -2,835,457 -251,854 648,685 -2,438,626
Interest expense, net 1,595,605 446,185 808,957 2,850,747
Income (loss) before
income taxes -3,659,841 -700,634 648,685 -3,711,790
Identifiable assets 79,167,360 11,930,990 22,959,606 114,057,956
Capital expenditures 37,838 0 0 37,838
Depreciation and
amortization 1,665,972 0 0 1,665,972
10 of 16
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 DecemberSix Months Ended
March 30, March 31,
2002 2001 2000
----------------- ---------------2002 2001
---- ---- ---- ----
Net Sales $20,087,599 $21,087,686$16,776,715 $24,748,635 $36,864,314 $45,836,321
Net Income (Loss) (152,578) (1,122,865)Loss (825,570) (1,326,926) (978,148) (2,449,790)
Net Earnings (Loss)Loss Per Common
Share (Basic and Diluted) $ (.03)(.19) (.29) $ (.25)
(.22) $ (.54)
(Unaudited)
As of As of
DecemberMarch 31, September 30,
2002 2001
2001
------------------ -------------- -----------------
Working Capital (Deficit) $(13,187,042) $(12,409,479)$ (11,511,479) $ (12,409,479)
Total Assets 95,095,60489,342,007 102,646,275
Long-Term Debt 0 0
Stockholder'sStockholders' Investment 24,868,083 25,005,66324,060,011 25,005,661
Common Shares Outstandingshares outstanding
(Basic and Diluted) 4,534,2064,534,170 4,565,661
Current Ratio 0.81:0.82:1 0:83:1
Funded Debt to Equity
Stockholders' Investment 2.23:2.15:1 2.28:1
911 of 1316
MCCLAINMcCLAIN 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 DecemberSix Months Ended
March 31, March 31,
2002 2001 2000
--------------------------2002 2001
------------------------ ------------------------
Net Sales 100.00% 100.00% 100.00% 100.00%
Cost of Sales 84.78 85.02
-------------------------87.96 83.94 86.23 84.43
Inventory Writedown 0 2.83 0 1.53
------- ------- ------- -------
Gross Profit 15.22 14.9812.04 13.23 13.77 14.04
Selling, General &
Administrative Expenses 15.55 19.38
-------------------------18.51 17.72 16.89 18.49
Restructuring charge 0 1.61 0 0.87
------- ------- ------- -------
Operating Income (Loss) (0.33) (4.40)Loss ( 6.47) (6.10) ( 3.12 (5.32)
Other Expenses (0.82) (3.67)
-------------------------
Income (Loss)( 0.99) ( 2.02) ( 0.90) ( 2.78)
------- ------- ------ -------
Loss before Income Taxes (1.15) (8.07)( 7.46) (8.12) ( 4.02) (8.10)
Income Taxes (Benefit) (0.39) (2.74)
-------------------------Tax Benefit 2.54 2.76 1.37 2.75
------- ------- ------- -------
Net Income (Loss) (0.76)Loss ( 4.92)% (5.33)( 5.36)% =========================( 2.65)% (5.35)%
------- ------- ------- -------
1012 of 1316
MCCLAINMcCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales decreased 4.7%32.2% to $20.1$16.8 million for the quarter ended DecemberMarch
31, 20012002 (Quarter 2001)2002) from $21.1$24.8 million for the quarter ended DecemberMarch 31, 20002001
(Quarter 2000)2001). The decrease was due primarily to reduced truck sales and the
continued limitedcontinuing slump in the capital expenditures by the national
hauling companies resulting from the continuing difficult economic environment.equipment markets. McClain E-Z Pack's sales
increased 5.4%decreased 39.8% or $0.7$6.0 million during the Quarter 20012002 compared to the Quarter
20002001 while McClain Truck sales decreased 50.4%61.8% or $2.0$2.6 million during the
Quarter 20012002 compared to the Quarter 2000.2001. Sales of the Company's dump body
products decreasedincreased by 4.6%6.2% or $0.13$.2 million for the Quarter 20012002 compared to the
Quarter 2000 due to the continued slump and excess
production capacity in the dump body markets.2001. The sales of the McClain Truck division accounted for 9.8%10.8% of the
Company's sales for the Quarter 20012002 compared to 18.8%20.6% of the Company's sales
for the Quarter 2000.2001.
Cost of goods sold decreasedincreased to 84.79%87.9% for the Quarter 2002 from 83.9%
for the Quarter 2001 from 85.02%
fordue to the Quarter 2000.lower sales volume. The gross profit margin on
manufactured products decreased to 16.7%14.7% for the Quarter 20012002 compared to 20.3%19.8%
for the Quarter 2000 due to
increased discounting related to the slow economy.2001. The McClain Truck division had a gross loss of 1.11%4.0% for
the Quarter 20012002 compared to a gross loss of 2.96%11.9% for the Quarter 20002001.
Selling, General & Administrative Expenses increased to 18.5% of net
sales for the Quarter 2002 from 17.2% of net sales for the Quarter 2001 due
primarily asthe lower sales volume.
The Company had a resultNet Loss of 4.92% of sales for the Quarter 2002
compared to a Net Loss 5.36% of sales for the Quarter 2001. The loss was due
primarily to reduced sales volumes particularly in the Company's E-Z Pack
product lines.
Net sales decreased 19.6% to $36.8 million for the six months ended
March 31, 2002 (six months 2002) from $45.8 million for the six months quarter
March 31, 2001 (six months 2001). The decrease was due primarily to reduced
truck sales and the continuing slump in the capital equipment markets. McClain
E-Z Pack's sales decreased 19.0% or $5.3 million during the six months 2002
compared to the six months 2001 while McClain Truck sales decreased 56.3% or
$4.7 million during the six months 2002 compared to the six months 2001. Sales
of the liquidationCompany's dump body products increased by 1.5% or $.1 million for the six
months 2002 compared to the six months 2001. The sales of certain stale chassisthe McClain Truck
division accounted for 10.9% of the Company's sales for the six months 2002
compared to 27.0% of the Company's sales for the six months 2001.
13 of 16
Cost of goods sold increased to 86.2% for the six months 2002 from
inventory.84.4% for the six months 2001 due primarily to the lower sales volume. The gross
profit margin on manufactured products decreased to 15.8% for the six months
2002 compared to 20.0% for the six months 2001. The McClain Truck division had a
gross loss of 2.42% for the six months 2002 compared to a gross loss of 7.57%
for the Quarter 2001
Selling, General & Administrative Expenses decreased to 15.54%16.89% of net
sales for the Quarter 2001six months 2002 from 19.38%18.49% of net sales for the Quarter 2000 as the
Company continued to bring operating costs in line with the current sales
volume.six months 2001.
The Company had a Net Loss of 2.65% of sales for the six months 2002
compared to a Net Loss of 5.35% of sales for the six months 2001. The loss was
due primarily to reduced sales volumes particularly in the Company's E-Z Pack
product lines.
The Company had negative working capital deficit of $13.2$11.5 million at DecemberMarch 31,
20012002 compared to negative working capital of $12.4 million at September 30, 2001.2001
(see subsequent discussion regarding the Company's debt agreements). The ratio
of current assets to current liabilities was 0.81:0.82:1 at DecemberMarch 31, 20012002 and 0.84:0.83:1
at September 30, 2001. The Company's cash and cash equivalents totaled $0.5$0.7
million at DecemberMarch 31, 2001.2002. Cash flows provided by operations were $4.4$8.4 million
for the threesix months ended DecemberMarch 31, 2001.2002.
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. The Company is
currently operating without an agreement with it principal lender. Accordingly,
the debt related to these
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agreements has been shown as a current liability.
Management's plans to resolve this matter include, exploring other financing
options while continuing 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, 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 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. The
revolving credit agreements expire in May 2002.
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Management believes, that if its principal lender extends the
forbearance period,does not chose to
accelerate its right to payment, 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, 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: February 6, 2002 By: /s/ Kenneth D. McClain
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Kenneth D. McClain, President
Date: February 6, 2002 By: /s/ Mark S. Mikelait
------------------------------- ------------------------------
McCLAIN INDUSTRIES, INC.
Date: May 3, 2002 By: /s/ Kenneth D. McClain
----------------------------------- -----------------------------------
Kenneth D. McClain, President
Date: May 3, 2002 By: /s/ Mark S. Mikelait
----------------------------------- -----------------------------------
Mark S. Mikelait, Treasurer
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