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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 14 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000
[ ] 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 9, 2001.
Common Stock, No Par Value 4,504,953
- --------------------------------------------------------------------------------
Class Number of Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, SEPTEMBER 30,
2000 2000
(UNAUDITED)
----------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $1,512,164 $1,401,810
Accounts receivable, (Net) 11,438,706 20,292,647
Inventories 48,624,577 52,031,112
Net investment in sales-type leases, current portion 7,800,000 7,500,000
Prepaid expenses 1,604,519 238,404
Refundable federal and state income taxes 1,228,717 587,612
----------------- ------------------
TOTAL CURRENT ASSETS 72,208,683 82,051,585
----------------- ------------------
PROPERTY, PLANT AND EQUIPMENT, NET 22,623,193 23,298,832
----------------- ------------------
NET INVESTMENT IN SALES-TYPE LEASES, NET OF
CURRENT PORTION 17,334,261 16,486,444
----------------- ------------------
OTHER ASSETS 1,810,688 1,848,052
----------------- ------------------
TOTAL OTHER ASSETS 113,976,825 123,684,913
================= ==================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $13,439,771 $14,523,573
Current portion of long-term debt 64,012,777 4,200,000
Accrued expenses 4,347,776 3,740,452
----------------- ------------------
TOTAL CURRENT LIABILITIES 81,800,324 22,464,025
Long-term debt, net of current portion 0 67,476,117
Product liability 969,155 1,182,315
Deferred income taxes 2,355,000 2,355,000
----------------- ------------------
TOTAL LIABILITIES 85,124,479 93,477,457
----------------- ------------------
STOCKHOLDERS' INVESTMENT 28,852,346 30,207,456
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $113,976,825 $123,684,913
================= ==================
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------------
2000 1999
----------------- ------------------
Net sales $21,087,686 $29,592,618
Cost of sales 17,928,298 24,005,434
----------------- ------------------
GROSS PROFIT 3,159,387 5,587,184
Selling, general and administrative
expenses 4,086,270 3,929,930
----------------- ------------------
INCOME (LOSS) FROM OPERATIONS (926,883) 1,657,254
----------------- ------------------
OTHER INCOME (EXPENSE)
Interest expense (1,572,364) (1,258,254)
Interest income 790,032 468,333
Other, net 8,350 (142,063)
----------------- ------------------
OTHER EXPENSE - NET (773,982) (931,984)
----------------- ------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,700,865) 725,270
Income taxes (benefit) (578,000) 247,000
----------------- ------------------
NET INCOME (LOSS) ($1,122,865) $478,270
================= ==================
Net income (loss) per share:
Basic ($0.25) $0.10
================= ==================
Assuming dilution ($0.25) $0.10
================= ==================
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------------------
2000 1999
--------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,122,865) $561,486
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 832,516 800,753
Common stock issued to directors for services 8,993 0
Net changes in operating assets and liabilities
which provided (used) cash:
Current assets excluding cash & cash equivalents 9,612,151 1,746,712
Other assets (1,244,163) (306,331)
Accounts payable (1,083,802) (2,557,315)
Accrued expenses 607,324 243,404
Federal and state income taxes 641,105 (513,994)
--------------------- --------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES 8,251,258 (25,285)
--------------------- --------------------
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (23,166) (324,870)
Payments (made on) received from liabilities assumed upon the
Galion acquisition (213,160) 721,409
--------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (236,326) 396,539
--------------------- --------------------
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal reduction of long term debt (7,663,340) (1,570,778)
Repurchase of common stock (241,238) 0
--------------------- --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (7,904,578) (1,570,778)
--------------------- --------------------
--------------------- --------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 110,354 (1,199,524)
--------------------- --------------------
Cash and cash equivalents, beginning of year 1,401,810 1,924,006
--------------------- --------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,512,164 $724,482
===================== ====================
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2000
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, 2000
are not necessarily indicative of the results that may be expected for
the year ending September 30, 2001. 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.
2. Inventories
Inventories at December 31, 2000 and September 30, 2000 are summarized
as follows:
(Unaudited)
December 31, 2000 September 30, 2000
---------------------------------------------
Materials and Supplies $ 23,189,577 $ 23,918,300
Work in Process 5,500,000 5,521,754
Finished Goods 11,850,000 11,146,428
Chassis 8,085,000 11,444,630
------------- -------------
$ 48,624,577 $ 52,031,112
------------- -------------
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, 2000 and 1999 options to purchase 146,983
and 258,337 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)
THREE MONTHS ENDED DECEMBER 31, 2000
4. Depreciation
For the three months ended December 31, 2000 and 1999, depreciation
charges were $698,805 and $710,242, respectively. Accumulated
depreciation totaled $23,977,679 and $23,259,276 at December 31, 2000
and September 30, 2000, 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 of December 31, 2000, the Company was not in
compliance with certain of the financial covenants contained in the
loan agreements with its principal lending institution and the Company
has been unable to obtain a waiver of the from its principal lender of
its right to accelerate repayment of debt arising from these covenant
violations. 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)
THREE MONTHS ENDED DECEMBER 31, 2000
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 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, 2000.
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.
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 November 2002 and June 2003.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 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. 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.
6. 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.
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2000
Information regarding the Company's operating segments follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------------- ------------------- ------------------ --------------------
2000
----
Net sales $15,446,670 $5,641,016 $0 $21,087,686
Lease revenues 0 0 1,798,609 1,798,609
Operating income (loss) (1,090,865) (192,896) 356,877 (926,883)
Interest expense, net 933,386 250,870 388,108 1,572,364
Income (loss) before
income taxes (1,042,382) (437,360) 356,877 (1,122,865)
Identifiable assets 77,408,495 11,434,069 25,134,261 113,976,825
Capital expenditures 23,166 0 0 23,166
Depreciation and
amortization 832,516 0 0 832,516
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
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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)
Three Months Ended
December 31,
2000 1999
----------------- -----------------
Net Sales $ 21,087,686 $ 29,592,618
Net Income (Loss) (1,122,865) 478,270
Net Earnings (Loss) Per Common
Share (Basic and Diluted) $ (.25) $ .10
(Unaudited)
As of As of
December 31, September 30,
2000 2000
-------------- ----------------
Working Capital $ (9,591,641) $ 59,587,560
Total Assets 113,976,825 123,684,913
Long-Term Debt 0 67,476,117
Stockholder's Investment 28,852,346 30,207,456
Common Shares Outstanding
(Basic and Diluted) 4,504,953 4,565,661
Current Ratio 0.88:1 3:65:1
Funded Debt to Equity
Stockholders' Investment 2.07:1 2.23:1
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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)
Three Months Ended
December 31,
2000 1999
--------------------------
Net Sales 100.00% 100.00%
Cost of Sales 85.02 81.12
--------------------------
Gross Profit 14.98 18.88
Selling, General &
Administrative Expenses 19.38 13.28
--------------------------
Operating Income (Loss) (4.40) 5.60
Other Expenses ( 3.67) ( 3.15)
--------------------------
Income (Loss) before Income Taxes (8.07) 2.45
Income Taxes (Benefit) ( 2.74) 2.74
--------------------------
Net Income (Loss) (5.33)% 1.62%
==========================
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MCCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales decreased 28.8% to $21.1 million for the quarter ended
December 31, 2000 (Quarter 2000) from $29.6 million for the quarter ended
December 31, 1999 (Quarter 1999). The decrease was due primarily to slumping
sales resulting from the slowdown in the manufacturing sector of the economy.
Sales for all product lines were down for the Quarter 2000. McClain E-Z Pack's
sales decreased 30.4% or $5.6 million during the Quarter 2000 compared to the
Quarter 1999 while McClain Truck sales decreased 24.5% or $1.3 million during
the Quarter 2000 compared to the Quarter 1999. These decreases were the result
of the economic slowdown and limited capital expenditures by the national
hauling companies. Sales of the Company's dump body products decreased by 25.8%
or $1.0 million for the Quarter 2000 compared to the Quarter 1999 due to the
continued slump and excess production capacity in the dump body markets. The
sales of the McClain Truck division accounted for 22.8% of the Company's sales
for the Quarter 2000 compared to 26.7% of the Company's sales for the Quarter
1999.
Cost of goods sold increased to 85.02% for the Quarter 2000 from 81.12%
for the Quarter 1999. The gross profit margin on manufactured products decreased
to 20.3% for the Quarter 2000 compared to 22.98% for the Quarter 1999 due to the
lower sales volume. McClain Truck had a gross loss of 2.96% for the Quarter 2000
compared to a gross profit of 5.4% for the Quarter 1999 primarily as a result of
the liquidation of certain stale chassis from inventory.
Selling, General & Administrative Expenses increased slightly to 19.38%
of net sales for the Quarter 2000 from 13.28% of net sales for the Quarter 1999
as a result of the lower sales volume.
The Company had negative working capital of $9.6 million at December
31, 2000 compared to $59.6 million at September 30, 2000 (see subsequent
discussion regarding the Company's debt agreements). The ratio of current assets
to current liabilities was 0.88:1 at December 31, 2000 and 3.65:1 at September
30, 2000. The Company's cash and cash equivalents totaled $1.5 million at
December 31, 2000. Cash flows provided by operations were $8.3 million for the
three months ended December 31, 2000.
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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
of December 31, 2000, the Company was not in compliance with certain of the
financial covenants contained in the loan agreements with its principal lending
institution and the Company has been unable to obtain a waiver of the from its
principal lender of its right to accelerate repayment of debt arising from these
covenant violations. Accordingly, the debt related to these agreements has been
shown as a current liability. The Company is currently exploring other options
while it negotiates with its principal lender to 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.
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. 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.
Management believes, that if its principal lender 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, 2000). 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: May 4, 2001 By: /s/ Kenneth D. McClain
----------------- ---------------------------
Kenneth D. McClain, President
Date: May 4, 2001 By: /s/ Mark S. Mikelait
----------------- ---------------------------
Mark S. Mikelait, Treasurer
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