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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 December 31, 1997
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________to ______________
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 February 5, 1998.
Common Stock, No Par Value 4,762,952
- -------------------------- ----------------
Class Number of Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1997
(unaudited)
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ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $1,940,703 $2,402,421
Accounts Receivable (Net) 15,706,350 16,589,263
Inventories 31,281,949 31,011,766
Net Investment in Sales Type
Leases - Current Portion 2,775,000 2,900,000
Prepaid Expenses 301,095 362,029
Refundable Federal & State 384,867 837,638
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Total Current Assets 52,389,964 54,103,117
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Property and Equipment 41,789,816 41,470,473
Accumulated Depreciation (16,966,389) (16,229,849)
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Net Property and Equipment 24,823,427 25,240,624
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Net Investment in Sales Type
Leases - Less Current Portion 5,387,442 5,348,773
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Other Assets 2,294,986 2,493,053
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Total Assets $84,895,819 $87,185,567
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 2,800,000 $2,800,000
Accounts Payable 13,565,299 14,132,646
Accrued Liabilities 3,483,803 3,650,468
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Total Current Liabilities 19,849,102 20,583,114
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Deferred Income Taxes 2,100,000 2,100,000
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Long Term Debt - Less
Current Portion 36,347,508 38,513,490
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Other Liabilities 2,403,212 2,151,872
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Stockholders' Equity 24,195,997 23,837,091
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Total Liabilities and
Stockholders' equity $84,895,819 $87,185,567
============ ============
See notes to condensed consolidated financial statements.
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MCCLAIN INDUSTRIES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
UNAUDITED
Three Months Ended
December 31,
1997 1996
-------------------------------
Net Sales $ 23,625,324 $ 20,312,230
Cost of Sales 19,252,930 16,506,633
------------ ------------
Gross Profit 4,372,394 3,805,597
Selling General
and Administrative
Expenses 3,278,925 3,170,269
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Operating Income 1,093,469 635,328
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Other Income (Expense)
Interest Expense (831,574) (724,161)
Interest Income 308,819 251,164
Other Income (Expense) (59,177) (106,263)
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Total Other Income (Expense) (581,932) (579,260)
Income Before Income Taxes 511,537 56,068
Income Taxes 174,000 19,000
------------ ------------
Net Income $ 337,537 $ 37,068
============ ============
Net income per common
and common equivalent shares $ .07 $ .01
============ ============
Weighted average number of
common and common equivalent
shares outstanding 4,762,953 4,753,836
============ ============
See notes to condensed consolidated financial statements.
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MCCLAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
-------- ---------
Net income $ 337,537 $ 37,068
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 857,339 843,596
Changes in assets and liabilities which
provided (used) cash
Current assets excluding cash & equivalents 798,664 912,159
Other assets 46,287 (2,438,750)
Accounts payable (567,347) 2,037,087
Accrued expenses (166,665) (445,530)
Federal income taxes 452,771 37,293
Other liabilities 251,340 35,224
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NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES 2,009,926 1,018,147
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (327,031) (1,244,856)
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NET CASH USED IN INVESTING ACTIVITIES (327,031) (1,244,856)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal additions of long term debt 0 953,954
Principal reductions of long term debt (2,165,982) (545,000)
Sale of common stock 61,369 0
Redemption of common stock (40,000) 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES (2,144,613) 408,954
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (461,718) 182,245
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,402,421 1,065,039
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CASH AND CASH EQUIVALENTS, END OF PERIOD $1,940,703 $1,100,007
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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, 1997
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 considered
necessary for a fair presentation have been included. Operating results for the
three month period ended December 31, 1997, are not necessarily indicative of
the results that may be expected for any other period of for the year ending
September 30, 1998. 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, 1997.
Certain amounts reported in 1996 have been reclassified to conform to the
1997 presentation.
2. Inventories
Inventories at December 31, 1997 and September 30, 1997 are summarized as
follows:
(Unaudited)
December 31, 1997 September 30, 1997
----------------- ------------------
Material and Supplies $17,481,949 $17,221,766
Work in Process 6,600,000 6,664,000
Finished Goods 7,200,000 7,126,000
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$31,281,949 $31,011,766
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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 year. 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
purchased with the proceeds from the exercise of the stock options; those
purchases 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 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1997
4. Depreciation
For the three months ended December 31, 1997 and 1996, depreciation charges
were $774,228 and $691,040, 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.
(continued)
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1997
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.
State and local agencies have become increasingly active in
the environmental area. The increased regulation by multiple agencies can be
expected to increase the Comapany's future environmental costs. In particular,
properties under federal and state scrutiny frequently result in significant
clean-up costs and litigation expenses related to a party's clean-up obligation.
However, the Company believes that the ever-increasing waste stream and the
continuing initiatives of government authorities relating to environmental and
waste disposal problems, including restrictions on landfill locations and
operations and extensive regulation relating to the disposal of waste, create
significant opportunities for companies in the solid waste handling equipment
industry. In addition, the trend towards classifying more materials as
"semi-hazardous" or "hazardous" waste may be expected to continue to make
handling such materials more complex, thereby further facilitating the market
for solid waste handling products.
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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)
Three Months Ended
DECEMBER 31,
----------------------
1997 1996
---- ----
Net Sales $23,625,324 $20,312,230
Net Income 337,537 37,068
Net Earnings Per Common
and Common Equivalent Share $.07 $.01
(Unaudited)
As of As of
December 31, September 30,
1997 1997
-----------------------------
Working Capital $32,540,862 $33,520,003
Total Assets 84,895,819 87,185,567
Long-Term Debt 36,347,508 38,513,490
Stockholders' Equity 24,195,997 23,837,091
Weighted Average Number
of Common and Common Equivalent
Shares Outstanding 4,762,953 4,729,281
Current Ratio 2.64:1 2.63:1
Long-Term Debt to Equity 1.50:1 1.62:1
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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,
---------------------------------
1997 1996
----- ----
Net Sales 100.00% 100.00%
Cost of Sales 81.49 81.26
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Gross Profit 18.51 18.74
Selling, General &
Administrative Expenses 13.88 15.61
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Operating Income 4.63 3.13
Other Expenses (2.46) (2.85)
------ ------
Income Before Income Taxes 2.17 .28
Provision for Income Taxes .74 .10
------ ------
Net Income 1.43% .18%
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McCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales increased 16.31% to $23.6 million for the quarter ended December 31,
1997 (Quarter 1997) from $20.3 million for the quarter ended December 31, 1996
(Quarter 1996). The increase in sales is attributable primarily to strong sales
in the McClain E-Z Pack product line. Cost of sales as a percentage of net sales
increased to 81.49% for the Quarter 1997 from 81.26% for the Quarter 1996.
Selling, General and Administrative expenses decreased to 13.88% of net sales
for the Quarter 1997 as a result of the increased sales volume and the
restructing of certain administrative processes.
The Company had working capital of $32.5 million at December 31, 1997
compared to $33.5 million at September 30, 1997. The ratio of current assets to
current liabilities was 2.64 to 1 at December 31, 1997 compared to 2.63 to 1 at
September 30, 1997. The Company's cash and cash equivalents totaled $1.94
million at December 31, 1997. Cash flows from operations were $2.0 million for
the quarter ended December 31, 1997, primarily as a result of increased
receivable collections.
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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: FEBRUARY 5, 1998 By: /s/ Kenneth D. McClain
----------------------- --------------------------
Kenneth D. McClain, President
Date: FEBRUARY 5, 1998 By: /s/ Mark S. Mikelait
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Mark S. Mikelait, Treasurer
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule