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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 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-7770
MCCLAIN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1867649
State of Incorporation I.R.S. Employer I.D. No.
6200 Elmridge Road
Sterling Heights, Michigan 48310
(810) 264-3611
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of August 9, 1996.
Common Stock, No Par Value 4,698,042
Class Number of Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
1996 1995
(unaudited) *
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,042,283 $ 1,173,370
Accounts receivable (net) 18,427,386 14,284,478
Inventories 29,070,137 31,229,399
Net investments in sales type
leases, current portion 2,027,623 1,305,800
Prepaid expenses 334,358 176,075
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Total Current Assets 51,901,787 48,169,122
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Plant and equipment 34,265,208 33,078,135
Accumulated depreciation (13,637,084) (11,894,922)
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Net Plant and Equipment 20,628,124 21,183,213
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Net investments in sales type
leases, net of current portion 3,501,756 2,255,164
Other assets 2,045,987 2,291,698
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Total other assets 5,547,743 4,546,862
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Total Assets $ 78,077,654 $ 73,899,197
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ 1,905,213 $ 2,179,449
Accounts payable 10,618,493 9,190,309
Accrued liabilities 2,204,752 2,331,809
Federal income tax 1,032,414 598,999
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Total Current Liabilities 15,760,872 14,300,566
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Long Term Debt - less
current portion 30,903,733 31,170,287
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Other liabilities 6,151,171 5,580,070
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Stockholders' investment 25,261,878 22,841,274
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Total Liabilities and
Stockholders' Investment $ 78,077,654 $ 73,899,197
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See notes to condensed consolidated financial statements.
*Derived from audited financial statements.
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MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
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Net Sales $24,924,635 $21,171,595 $62,006,070 $63,155,669
Cost of Sales 18,414,853 15,631,620 47,069,571 48,189,465
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Gross Profit 6,509,782 5,539,975 14,936,499 14,966,204
Selling, General
and Administrative
Expenses 3,069,875 3,267,021 9,483,823 9,161,814
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Operating Profit 3,439,907 2,272,954 5,452,676 5,804,390
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Other Income (Expense)
Interest expense (753,650) (631,578) (2,310,200) (1,543,099)
Interest income 196,096 29,879 559,481 95,622
Other expense ( 33,278) (152,275) ( 440,394) (658,755)
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Net Other Expense (590,832) (783,853) (2,191,113) (2,106,232)
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Income before
Income taxes 2,849,075 1,489,101 3,261,563 3,698,158
Income taxes 969,000 505,910 1,109,000 1,256,910
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Net Income $ 1,880,075 $ 983,191 $ 2,152,563 $ 2,441,248
=========== =========== =========== ===========
Net Income Per Common
Equivalent Shares $ .40 $ .21 $ .46 $ .53
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Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 4,698,042 4,625,284 4,698,042 4,625,284
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See notes to condensed consolidated financial statements.
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MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
JUNE 30,
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1 9 9 6 1 9 9 5
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,152,563 $2,441,248
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Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,885,700 1,444,378
Deferred income taxes 0 ( 2,084)
Common stock issued in lieu of cash 4,246 7,517
Changes in operating assets and liabilities
which provided (used) cash:
Current assets excluding
cash & cash equivalents (2,863,752)(16,387,620)
Other assets (1,000,881) (655,624)
Accounts payable 1,428,184 2,558,811
Accrued liabilities (127,057) 246,692
Federal income tax 433,415 1,527,650
Other liabilities 564,101 102,174
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TOTAL ADJUSTMENTS 323,956 (11,158,106)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,476,519 ( 8,716,858)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,236,035)( 2,587,717)
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NET CASH USED BY INVESTING ACTIVITIES (1,236,035)( 2,587,717)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Additions (reductions) to long term debt (540,790) 10,163,239
Sale (repurchase) of common stock 169,219 6,500
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ( 371,571) 10,169,739
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 868,913 (1,134,836)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,173,370 1,660,486
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,042,283 $ 525,650
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1. Basis of Presentation
The accompanying unaudited Condensed 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 accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and
nine month periods ended June 30, 1996, are not necessarily indicative of the
results that may be expected for the year ending September 30, 1996. 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, 1995.
2. Inventories
Inventories at June 30, 1996 and September 30, 1995 are summarized as
follows:
(Unaudited)
June 30, 1996 September 30,1995
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Material and Supplies $15,988,575 $17,400,070
Work in Process 5,814,027 6,255,749
Finished Goods 7,267,535 7,573,580
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$29,070,137 $31,229,399
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3. Earnings per Common Share and Common Equivalent Share
Earnings per common share and common equivalent share were calculated
using the weighted average number of common shares and common stock equivalents
outstanding during the period. The weighted average number of common shares
actually outstanding was increased by the number of shares issuable on the
exercise of the dilutive stock options when the market price of the common
shares exceeds the option price granted. This increase in the number of common
shares was reduced by the number of common shares that are assumed to have been
repurchased with the proceeds from the exercise of the stock options; those
repurchases were assumed to have been made at the average price of the common
stock during the period.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1996
4. Depreciation
For the nine months ended June 30, 1996 and 1995, depreciation charges
were $1,791,124 and $1,383,718. respectively.
5. Contingencies
Legal Proceedings
The Company is from time to time subject to various claims from existing
or former employees alleging gender, age or racial discrimination and
anti-union activity, none of which are expected to have a material adverse
affect on the Company. In addition, as a manufacturer of industrial products,
the Company is, from time to time, 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. While such claims
have not been material to the Company in any year and the Company believes that
it maintains adequate product liability insurance, there can be no assurance
that such insurance will continue to be available on terms acceptable to the
Company. Any product liability claim not fully covered by insurance, as well
as any adverse publicity from a product liability claim, could have a material
adverse effect on the Company. The Company is currently defending a few legal
proceedings involving product liability claims relating to McClain, Galion Dump
and E-Z Pack brand products. Galion Holding, pursuant to an indemnification it
provided Peabody Galion Division of Peabody International Corporation
("Peabody") in connection with the Galion Acquisition, is currently defending a
number of legal proceedings involving product liability claims arising out of
products manufactured by Peabody prior to the date of the Galion Acquisition.
These claims are also covered by insurance. Although the Company has already
settled many of these cases and the Company believes that it can continue to
successfully resolve these product liability claims, there can be no assurance
that the Company can continue to do so. The Company is not presently a party to
any material legal proceedings except as described above.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1996
5. Contingencies - (continued)
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.
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MCCLAIN INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
The following discussion should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, appearing
elsewhere in this report.
Selected financial data for the Company for the periods indicated:
(unaudited) (unaudited)
Three Months ended Nine Months ended
June 30, June 30,
1996 1995 1996 1995
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Net Sales $24,924,634 $21,171,595 $62,006,070 $63,155,669
Net Income $ 1,880,075 $ 983,191 $ 1,109,000 $ 2,441,248
Net Earnings Per
Common and Common
Equivalent Share $ .40 $ .21 $ .46 $ .53
(unaudited)
As of As of
June 30, September 30,
1996 1995
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Working Capital $36,140,915 $33,868,556
Total Assets 78,077,654 73,899,197
Long-Term Debt 30,903,733 31,170,287
Stockholders' Investment 25,261,878 22,841,274
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,698,042 4,657,476
Current Ratio 3.29:1 3.37:1
Long-Term Debt to Stockholders'Equity 1.22:1 1.36:1
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MCCLAIN INDUSTRIES, INC.
DISCUSSION OF RESULTS OF OPERATIONS
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,
1996 1995 1996 1995
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Sales 100.00% 100.00% 100.00 100.00%
Cost of Sales 73.88 73.83 75.91 76.30
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Gross Profit 26.12 26.17 24.09 23.70
Selling, General &
Admin. Expense 12.32 15.43 15.30 14.51
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Operating Income 13.80 10.74 8.79 9.19
Other Expenses (2.37) (3.70) (3.53) (3.33)
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Income Before Income Taxes 11.43 7.04 5.26 5.86
Provision for Income Taxes 3.89 2.39 1.79 1.91
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Net Income 7.54% 4.65% 3.47% 3.87%
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DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1996 (Quarter 1996) increased
17.73% to $24.9 million from $21.2 million for the quarter ended June 30, 1995
(Quarter 1995). Management believes the increase in sales is primarily
attributable to the restructuring of the sales department begun in the first
quarter of fiscal 1996. Cost of sales as a percentage of net sales increased
to 73.88% for the Quarter 1996 from 73.83% for the Quarter 1995 due primarily
to higher raw material costs. Selling, General and Administrative expenses
decreased to 12.32% of net sales for the Quarter 1996 from 15.43% for the
Quarter 1995 primarily due to the higher sales volume.
Net sales for the nine months ended June 30, 1996 decreased 1.85% to
$62.0 million from $63.0 million for the nine months ended June 30, 1995.
Cost of sales for the nine months ended June 30, 1996 decreased to 75.91% from
76.3 % for the nine months ended June 30, 1995. Selling, General and
Administrative expenses increased to 15.30% of net sales for the nine months
ended June 30, 1996 from 14.5% for the nine months ended June 30, 1995 due
primarily to the lower sales volume, particularly in the first quarter of
fiscal 1996.
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MCCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The Company had working capital of approximately $36.1 million at June 30,
1996 compared to $33.9 million at September 30, 1995. The ratio of current
assets to current liabilities was 3.29 to 1 at June 30, 1996 compared to 3.37
to 1 at September 30, 1995. Cash flows provided by operations were $2.5
million for the nine months ended June 30, 1996 primarily due to the reduction
in inventory levels. During this period the Company utilized $1.2 million for
the acquisition of machinery and equipment. The increase in leasing activity
and machinery and equipment acquisitions were financed primarily by borrowings.
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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 authorizd.
McCLAIN INDUSTRIES, INC.
Date: AUGUST 9, 1996 By: /s/ Carl Jaworski
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Carl Jaworski, Treasurer
Date: AUGUST 9, 1996 By: /s/ Kenneth D. McClain
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Kenneth D. McClain, President
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule