<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO 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)
STATE OF 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)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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, as amended, 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
As of December 11, 2000, the aggregate market value of the Registrant's
voting stock held by nonaffiliates of the Registrant was $19,134,715 determined
in accordance with the highest price at which the stock was sold on such date as
reported by the Nasdaq National Market.
As of December 11, 2000, there were 4,507,861 shares of the
Registrant's common stock issued and outstanding.
The Exhibit Index Begins on Page 49
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PART I
ITEM 1. BUSINESS
GENERAL
McClain Industries, Inc., a Michigan corporation ("McClain"), together
with its subsidiaries (the "Company"), is one of the nation's leading
manufacturers of a diversified line of dump truck bodies and solid waste
handling equipment. Dump truck bodies are assemblies attached to truck frames
and used to carry and dump solid materials such as dirt or gravel. Solid waste
handling equipment is used for the temporary storage, transportation and
compaction of residential, commercial and industrial waste and recycling
materials. The Company also sells truck chassis at the retail level. In
addition, the Company operates a steel tube mill to manufacture some of its
steel tubing needs. The Company also provides coiled steel cutting and
warehousing services for its own manufacturing operations and, on a limited
basis, for sale to third-party customers.
BACKGROUND
McClain was incorporated in 1968 and became a publicly-traded company
in 1973. It currently has: (i) five wholly-owned operating subsidiaries: McClain
E-Z Pack, Inc. ("E-Z Pack"); McClain Galion, Inc. ("Galion"); McClain Southland
Company ("Southland"); Shelby Steel Processing Co. ("Shelby Steel"); McClain
Tube Company (d/b/a Quality Tubing) ("Tube"); (ii) one wholly-owned lease
financing subsidiary: McClain Group Leasing, Inc. ("Leasing"); and (iii) one
wholly-owned international sales corporation, McClain International FSC, Inc.
("FSC"). All of these companies are Michigan corporations, except for FSC, which
is a Virgin Islands corporation.
The Company's executive offices are located at 6200 Elmridge Road,
Sterling Heights, Michigan 48310 and its telephone number is (810) 264-3611.
PRODUCTS
The Company manufactures and markets dump truck bodies and four solid
waste handling equipment product lines: (1) containers; (2) compactors and
baling equipment; (3) garbage and recycling truck bodies; and (4) transfer
trailers. The Company also markets truck chassis. Sales of dump truck bodies
accounted for approximately 14%, sales of solid waste handling equipment
accounted for approximately 65%, and truck chassis accounted for approximately
21% of the Company's consolidated net sales for the fiscal year ended September
30, 2000.
Dump Truck Bodies and Hoists
Galion manufactures steel and aluminum dump truck bodies varying in
capacity from two to twenty-five cubic yards at its Winesburg, Ohio facility.
E-Z Pack, under license from Galion, also manufactures dump truck bodies at its
Macon, Georgia and Oklahoma City, Oklahoma facilities. Dump truck bodies are
assemblies that are attached to a truck's frame or chassis, to allow the truck
to carry and dump solid materials such as dirt, gravel or waste materials.
Hoists are the hydraulic lift mechanisms used to tilt the dump body. Trucks with
a dump body and hoist are commonly seen in use as "dump trucks". The products
manufactured by Galion are sold under the registered trademark "Galion". The
trademark registration, if not renewed, will expire in the year 2001.
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Containers
Detachable Roll-Off Containers and Roll-Off Hoists. E-Z Pack
manufactures several types of detachable roll-off containers and roll-off hoists
at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia,
Demopolis, Alabama, and Oklahoma City, Oklahoma. Detachable roll-off containers
vary in capacity from ten to forty-five cubic yards and are transported with
their contents to recycling centers, incinerators or landfill sites. Roll-off
hoists consist of frames mounted on truck chassis which are hydraulically
operated to load, transport and dump roll-off containers. Roll-off hoists are
advertised and sold under the trade name "MAGNA-HOIST.
Intermodal, Water-Tight and Sludge Containers. The Company manufactures
various types of intermodal, water-tight and sludge containers at the Company's
facilities in Sterling Heights, Michigan, Demopolis, Alabama, and Oklahoma City,
Oklahoma. Intermodal containers vary in capacity from nineteen cubic yards to
thirty-five cubic yards and are designed for highway, railroad and marine
movement of waste products. Water-tight containers vary in capacity from ten to
forty cubic yards and are designed for highway movement of wet waste. Sludge
containers vary in capacity from ten to thirty-five cubic yards and are designed
for highway movement of slurry type waste products.
Compactors and Baling Equipment
The Company manufactures compactors at its facilities in Sterling
Heights, Michigan Demopolis, Alabama, and Oklahoma City, Oklahoma. Compactors
consist of a compaction unit and separate power source. Compaction units force
deposited refuse through an opening at one end of the unit into a roll-off body
coupled to the compaction unit. When the roll-off body is filled, the compactor
is detached and the roll-off body is removed for dumping. The Company also
manufactures unitized compaction systems consisting of a compactor and roll-off
container manufactured as a single unit. Compactors are sold under the trade
name "MAGNUM" and unitized compactor systems are sold under the trade name
"OCTAMAG". E-Z Pack manufactures, at the Winesburg, Ohio facility, several
models of balers which compact plastic and paper products, primarily cardboard.
Balers are either vertical downstroke or closed door horizontal balers.
Garbage and Recycling Truck Bodies
E-Z Pack manufactures at its Galion, Ohio facility traditional garbage
truck bodies comprised of front, rear and side loading truck bodies and a
recycling truck body used in solid waste handling and disposal. The front
loading truck bodies vary in capacity from thirty-two cubic yards to forty-three
cubic yards, the rear loading truck bodies vary in capacity from eighteen cubic
yards to thirty-one cubic yards, and the side loading truck bodies vary in
capacity from twenty-nine cubic yards to thirty-nine cubic yards. The recycling
truck bodies vary in capacity from thirty cubic yards to forty cubic yards. The
products manufactured by E-Z Pack are sold under the registered trademark "E-Z
Pack". Within this line, E-Z Pack sells its rear loading truck bodies under the
trademarks "Goliath", "Goliath II", and "Apollo", and its front loading truck
bodies under the trademark "Hercules". The side loading truck bodies and the
recycling truck bodies are principally identified by the E-Z Pack name only.
These trademarks will expire in the year 2001, unless renewed. The Company has
several patents covering its recycling truck.
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Transfer Trailers
E-Z Pack manufactures at its Galion, Ohio facility, various types of
steel and aluminum transfer trailers, including open-top walking floor trailers,
closed-top walking floor trailers, ejection trailers and open-top tipper
trailers, varying in capacity from thirty cubic yards to 124 cubic yards.
Transfer trailers are used to transport compacted solid waste from transfer
stations to landfills or incinerators.
Truck Chassis
Truck chassis are purchased and combined with either a roll-off hoist,
garbage truck body or dump body for sale as a road ready package. This program
gives the Company the opportunity to provide a more complete product to its
customers and gives it the ability to react quickly to unexpected customer
needs. Since the trucks are purchased rather than manufactured by the Company,
lower margins are expected on the sales of these package units then the sales of
products manufactured by the Company.
Leasing
Leasing provides the Company's customers with financing options through
both finance type and operating leases. The operating leases are T.R.A.C.
(Terminal Rental Adjustment Clause) leases.
CUSTOMERS AND DISTRIBUTION
For the fiscal year ended September 30, 2000 the Company's consolidated
net sales were divided approximately 41% to distributors, 51% to solid waste
handling companies, and 8% to other entities.
During the fiscal years ended September 30, 2000, 1999 and 1998,
approximately 22.6%, 23.1% and 28.8%, respectively, of the Company's total sales
were made to Waste Management, Inc. The Company has no contracts with any of its
customers, except Waste Management, Inc. (see footnote 16 to the consolidated
financial statements of the Company, included under Item 8 of the Form 10-K, for
additional information) and, accordingly, sells its products pursuant to
purchase orders placed from time to time in the ordinary course of business. The
Company delivers its products to its customers through the use of its own trucks
or common carriers.
The Company obtains its municipal as well as certain private contracts
through the process of competitive bidding. There can be no assurance that
municipalities or others will continue to solicit bids, or if they do, that the
Company will continue to be successful in having its bids accepted.
Additionally, inherent in the competitive bidding process is the risk that if a
bid is submitted and a contract is subsequently awarded, actual performance
costs may exceed the projected costs upon which the submitted bid or contract
price was based.
Historically, foreign sales have not accounted for a significant
portion of the Company's revenues, The Company anticipates that future foreign
sales will remain steady or increase slightly.
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SALES AND MARKETING
Historically, the Company's products have been marketed by the
Company's executive officers and sales personnel who have worked closely with
customers to solicit orders and to render technical assistance and advice. The
Company's executive officers will continue to devote a significant amount of
time to developing and maintaining continuing relations with the Company's
customers.
The Company also engages independent distributors and dealers in
various regions throughout the United States and certain foreign countries, for
marketing its products to customers. The Company's dealers are generally
responsible in their respective geographic markets for identifying customers and
soliciting customer orders. As of December 15, 2000, there were approximately
280 authorized Company dealers located in numerous states and 20 authorized
Company dealers, licensees and commissioned district managers in 10 foreign
countries, each of which is independently owned. The Company is dependent on
such dealers for a significant portion of its revenues. These dealers typically
specialize in specific products and areas and, accordingly, have specific
knowledge of and contacts in particular markets. The Company believes that its
dealers have enhanced and will continue to enhance the scope of the Company's
marketing and sales efforts and have, to a certain extent, also enabled the
Company to avoid certain significant costs associated with creating a more
extensive direct sales network.
The Company advertises its products under trade names and under its
name in trade journals and brochures. Other marketing efforts include articles
in trade publications, attendance at trade shows and presentations by the
Company's personnel at industry trade conferences.
The Company, through Leasing, also provides both sales-type financing
and operating leases. At September 30, 2000, Leasing held net lease receivables
of approximately $23.9 million.
RAW MATERIALS
The Company is dependent on third-party suppliers and manufacturers for
the raw materials and a significant portion of the parts it uses in the
manufacture of its products. The major raw materials used by the Company are
steel in sheet, plate, structural and tubular form and aluminum in sheet and
extruded form. The Company purchases its steel, principally in coils, and its
sheet and extruded aluminum from domestic mills, warehouses and importers.
Coiled steel is received by the Company at various manufacturing facilities
where it is then cut, bent, sheared and formed for assembly by welding. Electric
and hydraulic components incorporated into the power units of compactors, balers
and hoists used with dump bodies manufactured by the Company are brand name
items purchased from various sources and assembled by the Company or to their
specifications by outside sources. The assembled products are then painted to
customers' specifications.
While the Company attempts to maintain alternative sources for the
Company's raw materials and believes that multiple sources are currently
available for all of the raw materials that it uses, the Company's business is
generally subject to periodic shortages of raw materials which could have an
adverse effect on the Company.
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The Company generally has no supply agreements with any of its
suppliers and, accordingly, generally purchases raw materials pursuant to
purchase orders placed from time to time in the ordinary course of business.
Failure or delay by suppliers in supplying necessary raw materials to the
Company could adversely affect the Company's ability to obtain and deliver its
products on a timely and competitive basis. In addition, the Company has
experienced price fluctuations for the raw materials that it purchases,
particularly with respect to steel and aluminum. Any significant price
fluctuations in the future could also have an adverse effect on the Company.
The Company uses a forecasting and purchasing system to monitor the
quantity and cost of necessary raw materials. Such cost controls allow the
Company to minimize its operating costs by purchasing from the lowest priced
suppliers the appropriate amount of raw materials in light of the Company's
needs. The Company often orders raw materials in amounts in excess of its
anticipated short-term needs in order to take advantage of price discounts
available on large volume purchases of raw materials.
To reduce its cost of raw materials, the Company processes coiled steel
and manufactures some of its own tubing, rather than purchasing tubing and
processed sheet steel from third parties. The Company believes that it is the
only manufacturer of dump truck bodies and solid waste handling equipment to
process coiled steel and to operate a steel tube mill.
Steel Processing
Shelby Steel, a wholly-owned subsidiary of the Company, receives coiled
steel and either warehouses or cuts and processes the steel at its River Rouge,
Michigan facility to prescribed specifications. In addition to processing coiled
steel for use by the Company, Shelby Steel also offers steel processing and
warehousing services to third parties. Shelby Steel's ability to warehouse
customers' steel attracts customers such as steel brokers who do not maintain
facilities of their own to warehouse steel. Its steel processing and warehousing
sales are generally limited to customers in the Detroit metropolitan area. Sales
to third parties represented 93.8%, 92.6%, and 92.8% of Shelby Steel's business
and 1.4%, 1.5%, and 1.6% of the Company's consolidated net sales for the fiscal
years ended September 30, 2000, 1999 and 1998, respectively.
Tube Manufacturing
Tube, a wholly-owned subsidiary of the Company, began operating its
tube manufacturing line in the Company's Kalamazoo facility in mid-1994. The
facility receives coiled steel, slits the coil to proper width and forms it into
square and rectangular tubing. The tubing produced by this facility provides the
Company with approximately 95% of its steel tubing requirements.
COMPETITION
The Company faces intense competition in the solid waste handling
equipment and dump truck bodies industries. Certain of the Company's competitors
offer as wide a range of products, and have greater market share and financial,
marketing, manufacturing and other resources than the Company. At present, the
Company's order backlogs are approximately two to four weeks. In addition, the
Company believes
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that several of its competitors have added or are in the process of adding
additional manufacturing capacity, which could reduce order backlogs and price
levels, and consequently adversely affect the Company. Moreover, the absence of
highly sophisticated technology results in a number of small regional companies
entering the container and dump truck body industries periodically and competing
with the Company.
Although the Company believes that its products are superior to those
of most of its competitors because of the quality and amount of steel used in
its products, consumers generally find the products relatively interchangeable.
Consequently, price, product availability and delivery, design and manufacturing
quality and service are the principal means of competition. The Company believes
that it can continue to compete and further strengthen its competitive position
through proper pricing, marketing and cost-effective distribution of the
Company's products.
The steel processing industry is also highly competitive, with quality,
price and delivery the principal means of competition. The Company believes that
it will generally continue to maintain its competitive position in the
marketplace with respect to steel processing. Shelby Steel's ability to
warehouse customers' steel attracts customers such as steel brokers who do not
maintain facilities of their own to warehouse steel.
BACKLOG AND INVENTORY
The Company generally produces solid waste handling equipment and dump
truck bodies pursuant to customer purchase orders. The Company includes in its
backlog only firm product orders, which are subject to termination at will and
rescheduling, without penalty. The Company's backlog was approximately $12.9
million and $18.5 million at September 30, 2000 and 1999, respectively.
Substantially all of the Company's backlog is delivered within four to six weeks
of the Company's receipt of purchase orders. Due to numerous factors, including
termination of orders, rescheduling, possible change orders and delays, which
affect production and delivery of the Company's products, there can be no
assurance as to if or when cash receipts will be recognized from the Company's
backlog. In addition, year to year comparisons of backlog are not necessarily
indicative of future operating results. Although most of the Company's sales are
based on orders for goods to be manufactured, the Company nevertheless carries
certain amounts of finished goods inventory in order to meet customer delivery
dates. In addition, from time to time, the Company manufactures units in excess
of ordered units to "round out" production runs or to maintain base stock
levels. At September 30, 2000, 1999 and 1998, the Company had inventory of $52.0
million, $63.3 million and $38.9 million, respectively.
EMPLOYEES
The Company had approximately 700 employees as of December 15, 2000.
Seventy of the Company's hourly employees are represented by the McClain Hourly
Employees' Union pursuant to a collective bargaining agreement that expires
September 16, 2002. The 160 hourly employees of E-Z Pack are represented by the
International Association of Machinists and Aerospace Workers Union pursuant to
a collective bargaining agreement which expires June 12, 2003. The 31 hourly
employees of E-Z Pack are represented by the International Association of
Machinists and Aerospace Workers Union pursuant to a collective bargaining
agreement which expires November 1, 2002. On February 23, 1995 the National
Labor Relations Board (the "NLRB") conducted an election in response to a
petition filed by the Shopmen's Local Union No. 616 of the International
Association of Bridge, Structural and Ornamental
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Iron Workers (AFL-CIO) (the "Union") to represent the hourly employees at the
E-Z Pack facility in Macon, Georgia. The ballots of 11 employees were challenged
as ineligible. The Union filed charges against the Company asserting that it
committed various unfair labor practices which affected the election results and
that the challenged ballots should be counted. On October 17, 1996, the NLRB
issued a Decision, Order and Direction upholding 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 is bargaining with the union
and discussing the appropriate remedy and possible settlement of all claims with
the NLRB. The Company believes that relations with the hourly employees its
Georgia facility are generally satisfactory. There have been no work stoppages
due to labor difficulties.
ENVIRONMENTAL
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. The Company has budgeted
approximately $1.2 million to make capital additions and improvements to its
painting processes and enhance the related environmental controls at its
facilities in Sterling Heights, Michigan and Oklahoma City, Oklahoma.
State and local agencies have become increasingly active in the
environmental area. The increased regulation by multiple agencies can be
expected to increase the Company'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.
ITEM 2. PROPERTIES
In the aggregate, the Company owns or leases approximately 946,200
square feet of real property located in Michigan, Ohio, Georgia, Oklahoma,
Alabama and Florida. The Company owns three facilities in Michigan, four
facilities in Ohio, one facility in Georgia, one facility in Oklahoma, one
facility in Alabama and one facility in Florida. The properties that the Company
owns or leases consist of the following:
OWNED SQUARE
LOCATION OR LEASED FOOTAGE
-------- --------- -------
Sterling Heights, Michigan Owned 37,000
Sterling Heights, Michigan Leased 18,000
Kalamazoo, Michigan Owned 55,000
River Rouge, Michigan Owned 50,000
Galion, Ohio Owned 365,000
Winesburg, Ohio Owned 67,500
Winesburg, Ohio Owned 16,000
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OWNED SQUARE
LOCATION OR LEASED FOOTAGE
-------- --------- -------
Winesburg, Ohio Owned 15,200
Macon, Georgia Owned 114,500
Oklahoma City, Oklahoma Owned 100,000
Demopolis, Alabama Owned 102,000
Bartow, Florida Owned 6,000
The Company's main office and manufacturing facilities are located in a
37,000 square foot facility situated on 8 2/3 acres in Sterling Heights,
Michigan owned by the Company. This facility is used to manufacture roll-off
containers, roll-off hoists and compactors. The Company also owns a 55,000
square foot facility located in Kalamazoo, Michigan which is home to the
Company's tube mill. Shelby Steel owns a 50,000 square foot steel processing
facility on six acres of land in River Rouge, Michigan, where all of its
operations are conducted. The Company leases, under a verbal month-to-month
lease, an 18,000 square foot manufacturing facility also located in Sterling
Heights, Michigan from siblings of Messrs. Kenneth and Robert McClain. This
facility is used by the Company as a fabrication facility. The monthly rental
for this facility is $3,500, with the lessor responsible for the payment of real
estate taxes, assessments, insurance premiums and replacement in case of damage
by fire, and the Company responsible for maintenance of the building. The
Company believes that the terms and conditions of this lease are comparable to
the terms and conditions which would be available from an unrelated party with
respect to similar facilities, although other similarly situated unrelated
parties would, in all likelihood, require a long-term written lease.
E-Z Pack owns three buildings comprising approximately 365,000 square
feet situated on approximately 38 acres of land in Galion, Ohio. This facility
manufactures front, side and rear loading garbage truck bodies and recycling
trucks as well as transfer trailers.
Galion owns three manufacturing facilities (67,500, 15,200 and 16,000
square feet) situated on 20 acres of land in Winesburg, Ohio where it
manufactures dump bodies, hoists and balers.
E-Z Pack's Georgia facility is an approximately 114,500 square foot
manufacturing facility on 13.2 acres in Macon, Georgia where it manufactures
roll-off hoists.
E-Z Pack's Oklahoma facility consists of three buildings in Oklahoma
City, aggregating 100,000 square feet. This facility is used to fabricate and
process steel for its own use and to manufacture roll-off containers, compactors
and dump bodies.
E-Z Pack owns an approximately 102,000 square foot manufacturing
facility in Demopolis, Alabama on approximately 84 acres of land. This facility
is used to fabricate and process steel for its own use and to manufacture
roll-off containers and compactors.
The Company's Sterling Heights, Michigan facility and Galion, Ohio
facility are currently operating at approximately 80% of capacity. The Oklahoma
facility is currently operating at 65% of capacity. The Georgia facility is
currently operating at 50% of capacity. The Alabama facility is currently
operating at 60% capacity. The Winesburg, Ohio facility is currently operating
at 90% of capacity. The Kalamazoo, Michigan facility is currently operating at
60% of capacity. The determination of the productive capacity
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on each facility actually used by the Company is a function of the mix of
products being produced at such facility and the pricing of such products. The
production capacity figures set forth in this paragraph reflect the mix of
products presently produced by each facility and the present pricing of such
products. The Company enjoys expandable capacity at most of these facilities
depending on double-shifting and other performance enhancing activities.
On May 1, 2000 Southland purchased a facility that is approximately
6,000 square feet on approximately 3.43 acres of land. This property provides
administration offices and service facilities for Southland.
The facilities owned and leased by the Company are well maintained and
in good operating condition. Its plants and equipment are subject to various
liens and encumbrances that collateralize certain obligations. See Notes 6 and 7
of Notes to Consolidated Financial Statements.
ITEM 3. 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. See ITEM 1. BUSINESS. Employees. 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 number of legal proceedings involving product liability claims
relating to McClain, Galion and E-Z Pack brand products. Although the Company
believes that it can continue to successfully resolve pending and future product
liability claims, there can be no assurance that the Company will be able to do
so. The Company is not presently a party to any material legal proceedings
except as described above in this item and in Item 1. Business. Employees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded and quoted on the Nasdaq National
Market ("Nasdaq/NMS") under the trading symbol "MCCL." The following table sets
forth, for the periods indicated, the high and low sales prices for the Common
Stock as
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reported by Nasdaq/NMS. These per share quotations represent inter-dealer prices
on the Nasdaq/NMS, and do not include retail mark-ups or commissions.
SALES PRICE
OF
COMMON STOCK
------------
HIGH LOW
---- ---
FISCAL YEAR ENDED SEPTEMBER 30, 1999
First Quarter 5.875 3.125
Second Quarter 6.00 5.250
Third Quarter 5.938 4.25
Fourth Quarter 7.125 4.375
FISCAL YEAR ENDED SEPTEMBER 30, 2000
First Quarter 6.25 3.875
Second Quarter 6.812 4.187
Third Quarter 5.437 4.625
Fourth Quarter 5.625 3.875
On December 11, 2000, the last reported sales price for the Common
Stock as reported by Nasdaq/NMS was $4.25. As of such date there were
approximately 203 holders of record of the Common Stock. The Company believes
there are a substantial number of beneficial owners of the Company's Common
Stock whose shares are held in street name. The Company has never paid any cash
dividends. The payment of dividends by the Company is within the discretion of
the Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition, as well as other relevant factors. The
Board of Directors does not intend to declare any dividends in the foreseeable
future, but instead intends to retain earnings for use in the Company's
operations.
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the Company's last five fiscal years
ended September 30 are as follows:
<TABLE>
<CAPTION>
===================================================================================================
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Sales $142,978,636 $142,079,475 $118,487,052 $95,255,641 $84,680,797
Sales, Net of
Customer Discounts $141,117,959 $140,604,885 $116,554,031 $95,255,641 $84,221,810
Net Income (Loss) $(85,854) $4,181,938 $3,383,892 $(1,703,780) $2,384,957
Net Earnings (Loss)
Per Common and
Common Equivalent $(.02) $.90 $.72 $(.36) $.50
Share (1)
Working Capital $59,587,560 $58,689,965 $41,919,687 $33,520,003 $32,371,639
Total Assets $123,684,913 $129,923,989 $100,246,967 $87,185,567 $79,425,255
Long-Term Debt $67,476,117 $62,648,684 $42,530,105 $38,513,490 $34,217,149
Stockholders'
Investment $30,207,456 $30,890,965 $26,835,306 $23,837,091 $25,457,255
Weighted Average
Number of Common
Equivalent Shares
Outstanding(1) 4,565,661 4,673,027 4,711,741 4,729,281 4,752,050
Current Ratio 3.63:1 2.79:1 2.57:1 2.63:1 3.18:1
Long Term Debt to
Equity 2.24:1 2.03:1 1.59:1 1.62:1 1.34:1
===================================================================================================
</TABLE>
(1) Weighted average number of shares outstanding includes, as appropriate,
adjustments for the effect of common stock equivalents.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
consolidated financial statements, including the notes to them, appearing
elsewhere in this report.
12
<PAGE> 13
The following table presents, as a percentage of net sales, certain
selected financial data for the Company for the years indicated:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100.00% 100.00% 100.0% 100.00% 100.00%
Cost of Sales 84.47 82.40 82.18 83.68 79.65
----- ----- ----- ----- -----
Gross Profit 15.53 17.60 17.82 16.32 20.35
Selling, General &
Administrative Expenses 12.76 11.55 11.47 14.33 13.60
Restructuring and
Impairment Charge 0.00 0.00 0.00 1.84 0.00
---- ---- ---- ---- ----
Operating Profit 2.77 6.05 6.35 .15 6.75
Other Expense 2.86 1.54 2.22 2.24 2.48
---- ---- ---- ---- ----
Income (Loss) Before
Income Taxes (.09) 4.51 4.13 (2.09) 4.27
Income Taxes (Benefit) (.03) 1.53 1.23 (.30) 1.45
----- ---- ---- ----- ----
Net Income (Loss) (.06)% 2.98% 2.90% (1.79)% 2.82%
====== ===== ===== ======= ======
</TABLE>
RESULTS OF OPERATIONS
Comparison of year ended September 30, 2000 to year ended September 30, 1999
Net sales increased .4% to $141.1 million for the fiscal year ended
September 30, 2000 (Fiscal 2000) from $140.6 million for the fiscal year ended
September 30, 1999 (Fiscal 1999). The Company experienced increases in the sales
of its commodity products and truck chassis while refuse truck and dump body
sales decreased. Sales for the commodity products increased 5.14% or $2.7
million, while truck chassis sales increased 11.3% or $3.0 million. Dump body
sales decreased 5.4% or $1.1 million due primarily to an overall slump in the
dump body industry. During Fiscal 2000, E-Z Pack sales fell 9.41% or $3.4
million after an increase of 49.6% or $11.8 million in Fiscal 1999. This
decrease was due primarily to the national haulers limiting their capital
purchases while they implemented integration plans following ongoing
consolidations in the waste hauling industry. Sales of the Company's other
product lines increased slightly or were flat for Fiscal 2000 compared to Fiscal
1999. The sales of the McClain truck division accounted for 20.6% of the
Company's sales for Fiscal 2000 compared to 18.8% of the Company's sales for
Fiscal 1999.
The Company's overall gross profit as a percentage of sales decreased
to 15.53% for Fiscal 2000 from 17.60% for Fiscal 1999, while the gross profit
margin for products the Company manufactured increased to 21.8% for Fiscal 2000
compared to 21.4% for Fiscal 1999. This increase results from reduced steel
prices and increased production efficiencies at certain of the Company's
production facilities. The truck chassis division had a gross loss of 3.15%
during Fiscal 2000 compared to a gross profit of 6.8% for Fiscal 1999. During
Fiscal 2000 the Company determined that due to the current slump in the tandem
dump truck market and certain other market factors it would not be able to
compete effectively in the package dump truck market. Based on this
determination and the costs to continue carrying the dump truck chassis
inventory, the Company decided to liquidate the entire portion of this inventory
in the fourth quarter of Fiscal 2000. This liquidation resulted in a realized
loss on disposal of approximately $1.75 million.
Selling, General & Administrative Expenses increased to 12.76 % of net
sales for Fiscal 2000 from 11.55% of net sales for the Fiscal 1999 due primarily
to increases in marketing activity, health insurance costs, professional fees
and additional trucking
13
<PAGE> 14
expenses necessary to ship commodity products made at E-Z Pack's Demopolis,
Alabama facility to regions outside the Southeast in order to reduce a build up
of the finished goods inventory at that facility.
Inventory has decreased to $52.0 million at September 30, 2000 from
$63.3 million at September 30, 1999. This decrease is due primarily to the
liquidation of the dump truck chassis inventory as discussed above.
The Company's leasing subsidiary generated pretax income of $.91
Million for Fiscal 2000 compared to of $.81 Million for Fiscal 1999. The Company
had $23.9 Million in net finance lease receivables at September 30, 2000
compared to $18.8 Million at September 30, 1999.
Interest expense increased to $6.3 million in Fiscal 2000 from $4.0 in
Fiscal 1999. This increase was due primarily to rising interest rates, increased
debt related to the leasing company and the debt service on the dump truck
chassis inventory prior to the liquidation previously discussed.
Income taxes are calculated based on the current statutory rates. No
significant differences between the Company's effective rate and the statutory
rates exist.
The Company had a net loss of $85,854 for Fiscal 2000 compared to a net
profit of $4,181,938 for Fiscal 1999. This decrease was due primarily to losses
incurred by the Company's truck chassis division and increased interest expense
as previously discussed as well as reduced profits from the Company's refuse
truck and dump body divisions due to slower than expected sales.
Comparison of year ended September 30, 1999 to year ended September 30, 1998
Net sales increased 20.7% to $140.6 million for the fiscal year ended
September 30, 1999 (Fiscal 1999) from $116.5 million for the fiscal year ended
September 30, 1998 (Fiscal 1998). The increase was due primarily to strong sales
by the Company's E-Z Pack and truck chassis divisions. Sales for E-Z Pack
increased 49.6% or $11.8 million, while truck chassis sales increased 56.9% or
$9.6 million. Sales of the Company's other product lines increased slightly or
were flat for Fiscal 1999 compared to Fiscal 1998 The sales of the McClain truck
division accounted for 18.8% of the Company's sales for Fiscal 1999 compared to
14.5% of the Company's sales for Fiscal 1998. Although truck chassis sales
increased significantly, the number of trucks the Company had available for sale
at September 30, 1999 increased significantly over the September 30, 1998 level.
This increase was due primarily to the Company's decision to aggressively pursue
the truck chassis market for its tandem dump body product line. The market for
these truck chassis was extremely soft in 1999, which combined with the
Company's attempt to pursue this market caused approximately 60% of the increase
in the truck chassis inventory. The Company paid approximately $1.0 million
dollars in interest on debt incurred to finance this inventory increase.
The Company's overall gross profit as a percentage of sales decreased
to 17.60% for Fiscal 1999 from 17.82% for Fiscal 1998, while the gross profit
margin on products manufactured by the Company increased to 21.4% for Fiscal
1999 compared to 21.2% for Fiscal 1999. This increase results from reduced steel
prices and increased production, providing overhead reductions, at certain of
the Company's production facilities. The gross profit margin for the truck
chassis division decreased to 5.8% for Fiscal 1999 from 6.8% for Fiscal 1998,
due primarily to the softness in the truck chassis market in Fiscal 1999.
14
<PAGE> 15
Selling, General & Administrative Expenses increased to 11.55 % of net
sales for Fiscal 1999 from 11.47% of net sales for the Fiscal 1998 as a result
of increased marketing activity by the Company and expansion of its sales force.
Inventory increased to $63.3 million at September 30, 1999 from $38.9
million at September 30, 1998. Approximately $27.2. million of the inventory
consists of trucks and related equipment the Company has dedicated to its truck
ready program. This increase is the result of the Company's decision in the
fourth quarter of fiscal 1998 to more aggressively pursue an expanding market it
believes exists for package units consisting of a truck chassis and a piece of
equipment manufactured by the Company (roll-off hoists, refuse truck bodies and
dump bodies). See above discussion regarding dump truck chassis.
The Company's leasing subsidiary generated pretax income of $.81
Million for Fiscal 1999 compared to a pretax loss of $.02 Million for Fiscal
1998. The Company had $18.8 Million in net finance lease receivables at
September 30, 1999 compared to $10.8 Million at September 30, 1998.
Income taxes are calculated based on the current statutory rates. No
significant differences between the Company's effective rate and the statutory
rates exist.
The Company had net income of $4,181,938 for Fiscal 1999 compared to
net income of $3,383,892 for Fiscal 1998. This increase was due primarily to
strong sales in the Company's refuse truck division and the growth of the
Company's leasing subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $59.7 million at September 30, 2000
compared to $58.7 million at September 30, 1999. The ratio of current assets to
current liabilities was 3.63:1 at September 30 2000 and 2.79:1 at September 30,
1999. The Company's cash and cash equivalents totaled $1.4 million at September
30, 2000. Cash flows used by operations were $1.4 million for the year ended
September 30, 2000.
The Company's required level of working capital increased during fiscal
2000 from fiscal 1999 due to the continued success in expanding its leasing
subsidiary. Long-term debt continued to increase as a result of the continued
expansion of leasing activity and the Company's ongoing commitment to increasing
production efficiency by properly maintaining and upgrading its production
facilities and machinery and equipment.
The Company has a Revolving Credit Facility with Standard Federal Bank,
a federal savings bank ("Standard"), which provides maximum availability of
$32.1 for working capital needs. In May 2000 the Company signed an amendment to
this agreement that temporarily increased the availability of the line to $35.0
million. The new agreement calls for a monthly reduction to the availability of
$714,286, beginning June 1, 2000, and continuing through December 31, 2000, when
the total availability will be $30.0 million. At September 30, 2000 the Company
had borrowed approximately $30.3 million under the working capital line.
Borrowings under the working capital line are limited to 80% of eligible
accounts receivable and 50% of qualified inventory.
15
<PAGE> 16
The Company has a second Revolving Credit Facility with Standard used
to finance certain of its lease receivables. The agreement calls for a maximum
availability of $20.0 million with borrowing limited to 80% of eligible lease
receivables. At September 30, 2000 approximately $17.8 million had been drawn on
this facility.
All borrowings with Standard are secured by substantially all of the
assets of the Company. In addition, the loans contain various covenants
including those requiring the Company to maintain certain current ratios, levels
of tangible net worth and debt ratios and restricting the amount of capital
expenditures the Company may make each year. The Company was in violation of
certain covenants as of September 30, 2000 and has received a letter from
Standard waiving its rights to accelerate repayment of the debt arising from
these covenant violations. The revolving credit agreements bear interest at the
LIBOR rate plus 200 basis points (9.18% at September 30, 2000) and expire in May
2002 at which time the Company expects to obtain renewals on the same or similar
terms.
The Company has agreements with three financial institutions to provide
financing for its TRAC (Terminal Rental Adjustment Clause) Leasing Agreements.
The agreements call for maximum availability of $16 million in lease
commitments. Under these facilities, the Company may finance 100% of eligible
lease receivables over the term of the related lease at a fixed interest rate
determined at the time of the lease closing. The notes are secured by the
related lease receivable. At September 30, 2000, approximately $13.1 million had
been drawn on the facilities.
The Company has currently set its budget for capital expenditures in
Fiscal 2001 at approximately $1.75 million as compared to $3.0 million in Fiscal
2000. Management believes 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed under Item 14 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in the Company's independent public accountants
during the past two fiscal years and the Company does not disagree with such
accountants on any matter of accounting principles, practices or financial
statement disclosure.
16
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DATE
SERVICE
NAME AGE OFFICE BEGAN
---------------------- ------- ---------------------------------- -----------
<S> <C> <C> <C>
Kenneth D. McClain(1) 59 Chairman of the Board, Chief
Executive Officer and President 3/68
Robert W. McClain(1) 64 Senior Vice President, Assistant
Secretary and Director 3/68
Raymond Elliott 66 Director 8/90
Walter J. Kirchberger 65 Director 11/95
Carl Jaworski 57 Secretary 10/72
Mark S. Mikelait 40 Treasurer 5/97
</TABLE>
(1) Kenneth D. McClain and Robert W. McClain are brothers.
KENNETH D. MCCLAIN is Chairman of the Board and President of the
Company. He has been a director and officer of the Company since its inception
in March 1968. He also serves as Vice President and a director of Shelby Steel.
Mr. McClain is also a director and the Chairman of the Board of E-Z Pack and
Galion.
ROBERT W. MCCLAIN is Senior Vice President and Assistant Secretary of
the Company. He has been a director and officer of the Company since its
inception in March 1968. He also serves as President of Shelby Steel.
RAYMOND ELLIOTT has been a director of the Company since August 1990.
He is President of Hartland Insurance Group, Inc. From January 1, 1997 to
October 2, 1998, he was a Vice President of First of America Insurance (now
National City) Group since October 1996. Prior to that he was President and a
director of Elliott & Sons Insurance Agency, Inc. and Michigan Benefit Plans
Insurance Agency, Inc. since 1967. Mr. Elliott also serves as a director of the
Boys and Girls Club of Troy, a charitable organization located in Troy,
Michigan.
WALTER J. KIRCHBERGER was elected to the Board of Directors in November
1995. Mr. Kirchberger is First Vice President - Research of PaineWebber
Incorporated, and has served in such capacity for more than 25 years. Until
recently he also served as a director of Simpson Industries, Inc.
CARL JAWORSKI has served as Secretary since October 1972. Mr. Jaworski
was also a director and the Treasurer of the Company from October 1972 until
April 1992. Mr. Jaworski also serves as Secretary and a director of Shelby
Steel. Mr. Jaworski is the Secretary of E-Z Pack and Galion.
17
<PAGE> 18
MARK S. MIKELAIT has served as Treasurer of the Company since May 1997
and joined the Company in September 1994. Prior to that time Mr. Mikelait, a
CPA, was employed as a senior manager by Rehmann Robson, the Company's
independent auditors, beginning in November 1985.
The Company is required to identify each person who was an officer,
director or beneficial owner of more than 10% of the Company's registered equity
securities during the Company's most recent fiscal year and who failed to file
on a timely basis reports required by Section 16(a) of the Securities Exchange
Act of 1934. Based solely upon its review of copies of such reports received by
it during or with respect to the fiscal year ended September 30, 2000, the
Company believes that all officers, directors and beneficial owners of more than
10% of the Company's registered equity securities timely filed all required
reports.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth all cash compensation paid to the Chief
Executive Officer of the Company and the other executive officers whose total
annual salary and bonus from the Company exceeded $100,000 during the fiscal
year ended September 30, 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
Compensation
Name and Fiscal Salary Options/
Principal Position Year Amount($) SARs(#)
------------------ ---- ------ ----
<S> <C> <C> <C>
Kenneth D. McClain,
President/ CEO 2000 $294,792 -
1999 275,000 25,000
1998 263,031 -
Robert W. McClain, Senior
Vice President
2000 $150,000 -
1999 143,751 25,000
1998 125,004 -
Carl Jaworski Secretary
2000 $111,373 -
1999 $108,750 5,000
1998 104,631 5,000
Mark S. Mikelait Treasurer
2000 $122,781 -
1999 126,250 5,000
1998 101,250 10,000
</TABLE>
18
<PAGE> 19
AGGREGATED OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUES TABLE
<TABLE>
<CAPTION>
Shares No. of Unexercised Value of Unexercised
Acquired Options/SARs at In-The-Money Options/SARs at
on Fiscal Year-End (1) Fiscal Year-End(2)
Exercise Value Not Not
in 2000 Realized Exercisable Exercisable(1) Exercisable Exercisable
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. McClain -0- -0- 8,333 16,667 $ -0- $ -0-
Robert W. McClain -0- -0- 6,666 13,334 $ -0- $ -0-
Carl Jaworski -0- -0- 8,332 1,668 $ -0- $ -0-
Mark S. Mikelait -0- -0- 13,332 1,668 $ -0- $ -0-
====================================================================================================================================
</TABLE>
(1) Stock options granted between February 9, 1998 and May 7,1999 pursuant to
the Company's 1989 and 1999 Incentive Stock Plans (the "Incentive Plans").
Options must be exercised by May 7, 2004. Exercise prices vary from $5.08
to $5.50 per share.
(2) Value based on the average of the September 30, 2000 closing bid high and
low price which was $3.97 per share.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive compensation
for serving on the Board or on the Board's committees. Directors who are not
employees of the Company are entitled to a quarterly retainer fee of $3,750, a
$1,000 fee for each regular or special meeting of the Board and a $1,000 fee for
each committee meeting attended on a day other than a regular or special Board
meeting date (collectively, the "Fees"). A Director may elect to receive payment
of the Fees in shares of Common Stock pursuant to the Company's 1999 Retainer
Stock Plan for Non-Employee Directors (the "Retainer Plan"). To participate in
the Retainer Plan, an eligible director must elect prior to December 31 of each
year the percentage, if any, of Fees he desires to receive in the form of shares
of Common Stock. The Common Stock is issued quarterly during the following
calendar year. The number of shares of Common Stock to be issued to an eligible
director is determined by dividing the dollar amount of the percentage of fees
such director elects to receive in Common Stock by the "fair market value" of
Common Stock on the day prior to the date of issuance of the Common Stock to
such director. The term "fair market value" means the average of the highest and
lowest selling price for the Common Stock as quoted on Nasdaq/NMS for the day
prior to the date of issuance or for the first date prior to the date of
issuance for which shares of Common Stock are quoted, if not quoted on the day
prior to the date of issuance. Any fractional share of Common Stock derived from
such calculation is paid in cash.
The aggregate fair market value of the shares of Common Stock issued to
any eligible director in a given year cannot exceed 100% of such eligible
director's fees. Fees may not be increased more often than annually.
For the fiscal year ended September 30, 2000, 7,350 shares of Common
Stock were issued under the Retainer Plan.
19
<PAGE> 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 11, 2000, certain
information regarding the beneficial ownership of Common Stock, of: (i) each
person known to the Company to be the beneficial owner of more than five (5%)
percent of the Common Stock; (ii) each director of the Company; (iii) each
executive officer listed in the Summary Compensation Table; and (iv) all
executive officers and directors of the Company as a group, based upon
information available to the Company.
<TABLE>
<CAPTION> AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2)
----------------------------- ------------ ---------
<S> <C> <C>
Kenneth D. McClain 1,410,474(3) 31.23%
6200 Elmridge Road
Sterling Heights, MI 48310
Robert W. McClain 996,094(4) 22.07%
6200 Elmridge Road
Sterling Heights, MI 48310
June McClain 337,178 7.48%
6200 Elmridge Road
Sterling Heights, MI 48310
Robert J. Gordon 899,233(5) 19.95%
Suite 2400
One Woodward Avenue
Detroit, MI 48226
Raymond Elliott 27,223 0.60%
290 Town Center
P.O. Box 890
Troy, Michigan 48084
Walter Kirchberger 10,586 0.23%
2301 West Big Beaver Rd., Suite 800
Troy, Michigan 48084
Carl Jaworski 122.825 2.72%
6200 Elmridge Road
Sterling Heights, MI 48310
Mark S Mikelait 13.332 0.29%
500 Sherman Street
Galion, OH 44833
All current executive officers and 2,580,534(6) 56.59%
directors as a group (6 persons)
</TABLE>
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares that such person has a right to acquire within
60 days.
(2) Based on 4,507,861 shares of Common Stock issued and outstanding as of
December 11, 2000. In addition, for purposes of computing the
percentage of outstanding shares held by each person or group of
persons named above, any security that such person or persons has or
have the right to acquire within 60 days is also deemed to be
outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Includes 2,430 shares of Common Stock owned by Kenneth D. McClain's
wife. Mr. McClain disclaims beneficial ownership of these shares.
(4) Includes 337,178 shares of Common Stock owned by Robert W. McClain's
wife. Mr. McClain disclaims beneficial ownership of these shares.
(5) Represents shares of common stock held by Mr. Gordon as trustee
of trusts established for family members of Messrs. Kenneth D.
McClain and Robert W. McClain. Messrs. Kenneth D. McClain, Robert W.
McClain and Robert J. Gordon disclaim beneficial ownership of these
shares.
(6) Includes 36,663 shares which executive officers and directors have the
right to acquire pursuant to stock options exercisable within 60 days.
20
<PAGE> 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases one of its facilities from siblings of Messrs. Kenneth
and Robert McClain. See "Properties." The Company believes that the terms and
conditions of this lease are comparable to those available from an unrelated
party with respect to similar facilities.
The Company had sales of approximately $282,500 in Fiscal 2000 to McClain
Leasing Corporation, an entity controlled by certain officers and directors of
the Company.
The Hartland Insurance Group, an entity owned by Raymond Elliott, a
director of the Company, provided insurance to the Company during Fiscal 2000.
Sales from this entity to the Company aggregated approximately $1,466,000
million during Fiscal 2000, for which this entity received fees and commissions
in the approximate amount of $170,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form 10-K:
(1) A list of the financial statements required to be filed as a part of
this Form 10-K is shown in the "Index to the Consolidated Financial Statements
and Schedules" filed herewith.
(2) A list of financial statement schedules required to be filed as a part
of this Form 10-K is shown in the "Index to the Consolidated Financial
Statements and Schedules" filed herewith.
(3) A list of the exhibits required by Item 601 of Regulation S-K to be
filed as a part of this Form 10-K is shown on the "Index to Exhibits" filed
herewith.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 15, 2000 McCLAIN INDUSTRIES, INC.
By:/s/ Kenneth D. McClain
-----------------------------------
Kenneth D. McClain, President
(Principal Executive Officer)
And By:/s/ Mark S. Mikelait
-------------------------------
Mark S. Mikelait, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: December 15, 2000 /s/ Kenneth D. McClain
---------------------------------------
Kenneth D. McClain, Director
Dated: December 15, 2000 /s/ Robert W. McClain
---------------------------------------
Robert W. McClain, Director
Dated: December 15, 2000 /s/ Raymond Elliott
---------------------------------------
Raymond Elliott, Director
Dated: December 15, 2000 /s/ Walter J. Kirchberger
---------------------------------------
Walter J. Kirchberger, Director
22
<PAGE> 23
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Form 10-K
For Corporations
ANNUAL REPORT
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 and 1998
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
-23-
<PAGE> 24
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - September 30, 2000 and 1999
Consolidated Statements of Operations for the years ended September 30, 2000,
1999 and 1998
Consolidated Statements of Stockholders' Investment for the years ended
September 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended September 30, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
SCHEDULES
The information required to be submitted in Schedule II - Valuation and
Qualifying Accounts is included in the consolidated financial statements and
notes thereto.
The following schedules are omitted as not required or not applicable:
I, III, IV and V.
-24-
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
McClain Industries, Inc. and Subsidiaries
Sterling Heights, Michigan
We have audited the accompanying consolidated balance sheets of McClain
Industries, Inc. and Subsidiaries as of September 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' investment, and
cash flows for each of the three years in the period ended September 30, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of McClain Industries,
Inc. and Subsidiaries as of September 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2000 in conformity with generally accepted accounting
principles.
REHMANN ROBSON, P.C.
Farmington Hills, Michigan
December 7, 2000
-25-
<PAGE> 26
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
ASSETS SEPTEMBER 30,
---------------------------------------
2 0 0 0 1 9 9 9
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,401,810 $ 1,908,397
Accounts receivable, net of allowance for doubtful accounts
of $920,000 in 2000 ($570,000 in 1999) 20,292,647 20,140,166
Inventories 52,031,112 63,281,785
Net investment in sales-type leases, current portion 7,500,000 5,900,000
Prepaid expenses 238,404 237,129
Refundable federal and state income taxes 587,612 -
------------------ -----------------
TOTAL CURRENT ASSETS 82,051,585 91,467,477
PROPERTY, PLANT AND EQUIPMENT, NET 23,298,832 23,236,170
NET INVESTMENT IN SALES-TYPE LEASES, NET OF
CURRENT PORTION 16,486,444 12,871,973
Equipment under construction 1,012,690 698,234
Goodwill, net of amortization 616,624 1,044,734
Other 218,738 605,401
------------------ -----------------
TOTAL ASSETS $ 123,684,913 $ 129,923,989
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
<PAGE> 27
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' INVESTMENT SEPTEMBER 30,
--------------------------------------
2 0 0 0 1 9 9 9
------------------ ------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 14,523,573 $ 21,775,139
Current portion of long-term debt 4,200,000 4,450,000
Accrued expenses 3,740,452 4,682,156
Federal and state income taxes - 1,870,217
------------------ ------------------
TOTAL CURRENT LIABILITIES 22,464,025 32,777,512
Long-term debt, net of current portion 67,476,117 62,648,684
Product liability 1,182,315 1,406,828
Deferred income taxes 2,355,000 2,200,000
------------------ ------------------
TOTAL LIABILITIES 93,477,457 99,033,024
------------------ ------------------
COMMITMENTS AND CONTINGENCIES (NOTE 16)
STOCKHOLDERS' INVESTMENT
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding, 4,565,661 shares
(4,660,878 shares in 1999) 4,273,875 4,871,530
Retained earnings 25,933,581 26,019,435
------------------ ------------------
TOTAL STOCKHOLDERS' INVESTMENT 30,207,456 30,890,965
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 123,684,913 $ 129,923,989
================== ==================
</TABLE>
-27-
<PAGE> 28
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
2 0 0 0 1 9 9 9 1 9 9 8
------------------ ------------------ -----------------
<S> <C> <C> <C>
Net sales $ 141,117,959 $ 140,604,885 $ 116,554,031
Cost of sales 119,208,522 115,863,228 95,786,681
------------------ ------------------ -----------------
GROSS PROFIT 21,909,437 24,741,657 20,767,350
Selling, general and administrative
expenses 18,002,259 16,234,546 13,363,850
------------------ ------------------ -----------------
INCOME FROM OPERATIONS 3,907,178 8,507,111 7,403,500
------------------ ------------------ -----------------
OTHER INCOME (EXPENSE)
Interest expense (6,343,380) (3,982,325) (3,381,132)
Interest income 2,457,524 1,575,188 1,285,016
Other, net (151,176) 236,964 (493,492)
------------------ ------------------ -----------------
OTHER EXPENSE - NET (4,037,032) (2,170,173) (2,589,608)
------------------ ------------------ -----------------
(LOSS) INCOME BEFORE INCOME TAXES (129,854) 6,336,938 4,813,892
Income taxes (benefit) (44,000) 2,155,000 1,430,000
------------------ ------------------ -----------------
NET (LOSS) INCOME $ (85,854) $ 4,181,938 $ 3,383,892
================== ================== =================
Net (loss) income per share:
Basic $ (0.02) $ 0.90 $ 0.72
================== ================== =================
Assuming dilution $ (0.02) $ 0.90 $ 0.72
================== ================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-28-
<PAGE> 29
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTALS
------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance at October 1,
1997 4,737,622 $ 5,383,486 $ 18,453,605 $ 23,837,091
Shares issued 45,284 90,323 - 90,323
Shares repurchased (96,179) (476,000) - (476,000)
Net income - - 3,383,892 3,383,892
------------- -------------- --------------- ----------------
Balance at September 30,
1998 4,686,727 4,997,809 21,837,497 26,835,306
Shares issued 4,505 25,123 - 25,123
Shares repurchased (30,354) (151,402) - (151,402)
Net income - - 4,181,938 4,181,938
------------- -------------- --------------- ----------------
Balance at September 30,
1999 4,660,878 4,871,530 26,019,435 30,890,965
Shares issued 7,350 32,970 - 32,970
Shares repurchased (102,567) (630,625) - (630,625)
Net loss - - (85,854) (85,854)
------------- -------------- --------------- ----------------
BALANCE AT SEPTEMBER 30,
2000 4,565,661 $ 4,273,875 $ 25,933,58 $ 30,207,456
============= ============== =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-29-
<PAGE> 30
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
2 0 0 0 1 9 9 9 1 9 9 8
------------------ ------------------------ -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (85,854) $ 4,181,938 $ 3,383,892
Adjustments to reconcile net (loss) income to
net cash used in operating activities
Depreciation and amortization 3,425,281 3,280,109 3,395,115
Deferred income taxes (benefit) 155,000 (15,000) 115,000
Provision for doubtful accounts 230,800 146,500 481,407
Gain on disposal of plant and equipment (28,856) (8,330) (1,530)
Common stock issued to directors for services 32,970 25,123 31,127
Net changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable (383,281) 3,949,095 (8,127,905)
Inventories 11,250,673 (24,408,308) (7,861,711)
Net investment in sales-type leases (5,214,471) (9,658,012) (865,186)
Prepaid expenses and other assets (623,411) (233,581) 403,712
Accounts payable (7,251,566) 3,369,915 4,272,578
Accrued expenses (2,811,921) 1,500,945 1,400,960
------------------ -------------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (1,304,636) (17,869,606) (3,372,541)
------------------ -------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (2,953,102) (2,768,433) (965,246)
Payments on liabilities assumed upon the
Galion acquisition (224,513) (503,077) (241,967)
Proceeds from sale of plant and equipment 28,856 8,330 1,528
------------------ ------------------------ -----------------
NET CASH USED IN INVESTING ACTIVITIES (3,148,759) (3,263,180) (1,205,685)
------------------ ------------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 9,027,433 24,303,311 7,269,129
Repayments of long-term debt (4,450,000) (3,034,732) (2,752,514)
Sale of common stock under stock option plan
- - 59,196
Repurchase of common stock (630,625) (151,402) (476,000)
------------------ ------------------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,946,808 21,117,177 4,099,811
------------------ ------------------------ -----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (506,587) (15,609) (478,415)
Cash and cash equivalents, beginning of year 1,908,397 1,924,006 2,402,421
------------------ ------------------------ -----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,401,810 $ 1,908,397 $ 1,924,006
================== ======================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-30-
<PAGE> 31
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
McClain Industries, Inc. and its wholly-owned subsidiaries (the
"Company") manufacture and sell a diversified line of dump truck bodies
(assemblies attached to truck frames which are used to carry and dump
solid materials such as dirt, gravel or waste materials) and solid
waste handling equipment (including containers, compactors and baling
equipment, garbage and recycling truck bodies, and transfer trailers)
used for the temporary storage, transportation and compaction of
residential, commercial and industrial waste and recycling materials.
The Company sells its dump truck bodies primarily to truck equipment
dealers and its solid waste handling equipment primarily to
distributors, solid waste handling companies, government agencies,
shopping centers and other large retail outlets principally within the
United States. The Company also sells truck chassis at the retail
level. In addition, the Company provides coiled steel cutting and
warehousing services for its own manufacturing operations in order to
reduce its processed steel expense (one of its major cost components)
and, on a limited basis, for sale to third-party customers.
Principles of Consolidation
The consolidated financial statements include the accounts of McClain
Industries, Inc., and its wholly-owned subsidiaries (McClain E-Z Pack,
Inc., McClain, Galion, Inc., Shelby Steel Processing Co., McClain Group
Leasing, Inc., McClain Tube Company, and McClain International FSC,
Inc., an international sales corporation). On January 1, 1999, Galion
Holding Company, McClain of Georgia, Inc., McClain of Ohio, Inc.,
McClain of Oklahoma, Inc., McClain of Alabama, Inc., McClain EPCO,
Inc., and McClain Group Sales, Inc. were merged into McClain E-Z Pack,
Inc. McClain E-Z Pack, Inc. and McClain Galion, Inc. were formerly
operating subsidiaries of Galion Holding Company. All significant
intercompany accounts and transactions have been eliminated.
Concentration Risks
The Company grants trade credit to its customers in the normal course
of business. No collateral is required. Concentrations of credit risk
with respect to trade receivables generally are limited due to the
relatively large number of customers comprising the Company's customer
base and its geographic dispersion, with the exception of the customer
discussed below. The Company maintains reserves for potential credit
losses and such losses have historically been insignificant and
generally within management's expectations.
Sales to a major customer aggregated approximately $31,870,000,
$32,500,000, and $33,642,000 in 2000, 1999 and 1998, respectively. The
Company had receivables of approximately $2,070,000 and $3,066,000 from
this customer at September 30, 2000 and 1999, respectively. The loss of
this customer could adversely affect the Company's short-term operating
results.
-31-
<PAGE> 32
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of income and expenses during the reporting periods. Actual
results could differ from those estimates. Significant estimates
include but are not limited to product liability, goodwill amortization
and the allowance for doubtful receivables.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the year plus or minus the change
during the year in deferred tax assets and liabilities. Deferred income
taxes arise from temporary basis differences principally related to
inventory, product liability, and plant and equipment.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Sales-Type Leases
The Company, through McClain Group Leasing, Inc., offers lease
financing to certain purchasers of the Company's products. These
leases, along with TRAC leases (Note 4) entered into subsequent to
September 30, 1998, meet the criteria for classification as capitalized
leases and are accounted for as sales-type leases, whereby sales and
gross profit are recognized at the inception of the lease. Accordingly,
an investment is reflected on the accompanying balance sheets in an
amount equal to the gross minimum lease payments receivable less
unearned finance income. Unearned finance income is amortized in such a
manner as to produce a constant periodic rate of return on the net
investment in the lease.
Goodwill
Goodwill representing the purchase price in excess of the fair values
of net assets acquired is amortized on a straight line basis. The
amortization period is estimated based upon management's judgements and
is generally five years. Accumulated amortization as of September 30,
2000 and 1999 was $1,634,101 and $1,205,990, respectively.
-32-
<PAGE> 33
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings (Loss) Per Share
Earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the year. The diluted amount reflects the
potential dilution of all common stock equivalents. At September 30, 2000, 1999
and 1998 options to purchase 262,000, 244,998, and 199,476 common 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. A reconciliation of the denominators used in the basic and
diluted share calculation follows for the years ended September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9 1 9 9 8
------------ ------------- ------------
<S> <C> <C> <C>
Denominator:
Weighted average shares outstanding, basic 4,565,661 4,673,027 4,711,741
Incremental shares from assumed
conversion of options - 109 -
--------- --------- ---------
Weighted average shares outstanding, diluted 4,565,661 4,673,583 4,711,741
========= ========= =========
</TABLE>
Fair Values of Financial Instruments
The carrying amount of cash equivalents, accounts receivable and accounts
payable approximate their fair values due to the short-term maturity of these
financial instruments. The carrying amounts of long-term debt approximate their
fair values because the interest rates are representative of, or change with,
market rates.
Common Stock Issued to Directors for Services
Common stock is issued from time to time in lieu of cash for services provided
to the Company by its Directors and is recorded as compensation expense
generally at the fair value on the date of issuance.
Revenue Recognition
Sales are recorded by the Company when the products are delivered to independent
distributors or other customers.
-33-
<PAGE> 34
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The following is a summary of changes in the allowance for doubtful
accounts during each of the three years in the period ended September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9 1 9 9 8
------------- ------------- ------------
<S> <C> <C> <C>
Balance, beginning of year $ 570,000 $ 800,000 $ 500,000
Add provision charged
against income 230,800 146,500 481,400
Less uncollectible accounts
written off, net of recoveries 119,200 (376,500) (181,400)
--------- --------- ---------
BALANCE, END OF YEAR $ 920,000 $ 570,000 $ 800,000
========= ========= =========
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. The major components of inventories
were as follows at September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
-------------- -------------
<S> <C> <C>
Materials $ 23,918,300 $ 19,416,535
Work-in process 5,521,754 5,555,977
Finished goods 11,146,428 11,120,913
------------- -------------
40,586,482 36,093,425
Chassis 11,444,630 27,188,360
------------- -------------
$ 52,031,112 $ 63,281,785
============= =============
</TABLE>
The chassis inventory above consists of the cost of the vehicle as
purchased from the manufacturer and, as applicable, includes the Company's
cost of manufacturing, assembling and mounting its truck bodies and waste
handling equipment products. The purchased cost of the chassis on a
stand-alone basis was $8,473,526 and $24,733,961 at September 30, 2000 and
1999, respectively.
-34-
<PAGE> 35
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LEASING OPERATIONS
Sale-Leaseback-Sublease Transactions
The Company, through McClain Group Leasing, Inc., has TRAC (Terminal
Rental Adjustment Clause) leasing programs in place with three financial
institutions in order to assist customers in obtaining financing for
certain products delivered by guaranteeing a portion of the residual
values of such products. Distribution of the Company's products in this
manner has been accomplished by (i) selling the products to the
independent financial institution leasing company, (ii) leasing the
products back and providing a specified minimum guaranteed residual value
to the leasing company, and (iii) subleasing the product to the user
customer. TRAC leasing activity subsequent to September 30, 1998 is
accounted for as sales-type leases.
Sales-Type Leases
The Company provides financing contracts for the sales of various
manufactured products to certain of its customers. Such financing is
principally structured in the form of finance leases having a five-year
term, which are accounted for as sales-type leases, with the related gross
profit on sale of the products recognized as income currently.
The total net investment in these sales-type leases is comprised of the
following amounts at September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
--------------- ---------------
<S> <C> <C>
Gross minimum lease payments
collectible in monthly installments $ 30,248,398 $ 23,060,916
Less advance lease payments and
deposits received
787,093 428,563
Subtotal ------------ ------------
Less unearned finance income 29,461,305 22,632,353
5,474,861 3,860,380
Total net investment in sales-type leases ------------ ------------
Current portion 23,986,444 18,771,973
7,500,000 5,900,000
Noncurrent portion ------------ ------------
$ 16,486,444 $ 12,871,973
============ ============
</TABLE>
-35-
<PAGE> 36
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross minimum lease payments, net of advances and deposits, are
collectible in the following scheduled annual amounts for the years
succeeding September 30, 2000:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
--------------- -----------------
<S> <C>
2001 $ 8,756,000
2002 7,676,000
2003 6,411,000
2004 4,946,000
2005 1,672,305
--------------
Gross minimum amount collectible $ 29,456,305
==============
</TABLE>
The TRAC leasing programs in place with financial institutions allow for
maximum availability of $16,000,000 in lease commitments which provide for
financing of 100% of eligible lease receivables over the term of the
related lease. These notes are secured by a pledge of the remittances in
the related sublease. At September 30, 2000, approximately $15,785,759 had
been drawn on these lease programs, $3,287,464 of which is accounted for
as capital lease obligations (Note 7) and $12,498,295 of which is
accounted for as minimum lease payments due under operating leases.
The following is a schedule of future minimum lease payments required
under capital lease obligations for the years succeeding September 30,
2000:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
--------------- ------------
<S> <C>
2001 $ 850,000
2002 850,000
2003 850,000
2004 737,464
-----------
Total 3,287,464
Less amounts representing interest
at various interest rates 62,000
-----------
Present value of net minimum lease payments $ 3,225,464
===========
</TABLE>
-36-
<PAGE> 37
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental income from these subleasing activities was $2,817,000 and
$1,221,000, $1,382,000 in the years 2000, 1999 and 1998, respectively,
while the related rental expense for the leaseback of the products was
$2,629,000, $1,035,000 and $1,317,000 during the years ended September 30,
2000, 1999 and 1998, respectively. Proceeds of the subleasing activities
have been, and are expected to continue to be, in excess of the related
rental expense. Minimum scheduled rental payments and rental receipts
under these operating lease arrangements in future years are summarized as
follows:
<TABLE>
<CAPTION>
Year ending Rental Rental
September 30 Payments Receipts
------------ -------------- --------------
<S> <C> <C>
2001 $ 2,749,625 $ 3,239,092
2002 2,749,625 3,239,092
2003 2,749,625 3,239,092
2004 2,749,625 3,239,092
2005 1,499,795 1,766,778
------------ ------------
Gross minimum rental payments $ 12,498,295 $ 14,723,146
============ ============
</TABLE>
Total residual values guaranteed by the Company under these leasing
arrangements approximates $1,150,000 as of September 30, 2000.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation for
financial reporting purposes is provided primarily using the straight-line
method over the estimated useful lives of the assets. Accelerated
depreciation methods are used for income tax purposes. Estimated useful
lives range from 20 to 40 years for buildings and improvements, and 3 to
30 years for machinery, equipment, furniture and fixtures, and vehicles.
Expenditures for maintenance and repairs are charged to expense as
incurred, and significant betterments are capitalized.
Property, plant and equipment consisted of the following amounts as of
September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
------------- --------------
<S> <C> <C>
Land $ 2,366,387 $ 2,282,977
Buildings and improvements 15,783,431 14,926,790
Machinery and equipment 24,008,223 22,903,789
Furniture, fixtures and vehicles 4,400,067 4,169,061
------------ ------------
Less accumulated depreciation 23,259,276 21,046,447
------------ ------------
Property, plant and equipment, net $ 23,298,832 $ 23,236,170
============ ============
</TABLE>
-37-
<PAGE> 38
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LINES OF CREDIT
The Company and certain of its subsidiaries are party to the following
line of credit agreements with financial institutions as of September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
-------------- -------------
<S> <C> <C>
Revolving line of credit providing for maximum availability of up to
$32,142,858 and $33,333,334 at September 30, 2000 and 1999,
respectively. In May 2000, the Company signed a new agreement
temporarily increasing the availability of the line to $35,000,000.
The agreement calls for a monthly reduction to the availability of
$714,286, beginning June 1, 2000, and continuing through December 31,
2000, when the total availability will be $30,000,000. Borrowings are
limited to 80% of the eligible accounts receivable and 50% of
qualified inventory and are subject to interest at the LIBOR rate
plus 200 basis points (9.18% at September 30, 2000). $ 30,341,000 $ 26,858,901
The agreement is collateralized by substantially all the assets of
the Company and contains various covenants requiring the Company to
maintain certain financial ratios. The agreement also prohibits the
Company from incurring additional indebtedness other than
subordinated indebtedness and limits plant and equipment acquisitions
to $3.0 million per fiscal year. This agreement expires in May 2002,
at which time the Company expects to obtain a renewal upon the same
or similar terms.
Line of credit providing for maximum availability of $20,000,000 in
2000 and $15,000,000 in 1999. The agreement calls for a reduction to
the availability of $5,000,000 at December 31, 2000, when the total
availability will be $15,000,000. Borrowings are limited to 80% of
eligible lease receivables and are subject to interest at the LIBOR
rate plus 200 basis points (9.18% at September 30, 2000). The
agreement is collateralized by certain equipment leases held by the
Company's leasing subsidiary. This agreement expires in May 2002, at
which time the Company expects to obtain a renewal upon the same or
similar terms. 17,808,000 12,125,000
------------- -------------
Total lines of credit borrowings (Note 7) $ 48,149,000 $ 38,983,901
============= =============
</TABLE>
-38-
<PAGE> 39
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
Long-term debt consisted of the following obligations as of September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
-------------- -------------
<S> <C> <C>
Promissory note to a bank, collateralized by certain assets as
disclosed in Note 6. The note is payable in monthly installments of
$220,000 plus interest at the LIBOR rate plus 230 basis points
(effective rate of 9.48% at September 30, 2000), maturing in
September 2006. $ 15,860,000 $ 18,500,000
Promissory notes to banks, collateralized by commercial mortgages on
certain real estate, payable in monthly installments of $28,300 plus
interest ranging from the bank prime rate to prime plus 1/4%
(effective rates of 9.5% to 9.75% at September 30, 2000), maturing at
various dates through December 2002 791,653 1,039,783
Industrial Revenue Bonds, collateralized by a bank letter of credit.
The bonds are payable in annual installments of $525,000 through
April 2007. The bonds bear interest, payable monthly, at either a
fixed term, or a variable rate (effective rate of 4.6% at September
30, 2000) as determined by the bond holder. 3,650,000 4,175,000
------------- -------------
Subtotal, notes and bonds 20,301,653 23,714,783
Capital lease obligations (Note 4) 3,225,464 4,400,000
Lines of credit borrowings (Note 6) 48,149,000 38,983,901
------------- -------------
Total long-term debt 71,676,117 67,098,684
Less current portion 4,200,000 4,450,000
------------- -------------
$ 67,476,117 $ 62,648,684
Long-term debt, net of current portion ============= =============
</TABLE>
-39-
<PAGE> 40
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled aggregate principal maturities of long-term debt for each of
the five years succeeding September 30, 2000 and thereafter are
presented below:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
------------------- ---------------
<S> <C>
2001 $ 4,200,000
2002 52,649,000
2003 4,110,841
2004 3,866,276
2005 3,165,000
Thereafter 3,685,000
---------------
$ 71,676,117
===============
</TABLE>
The debt agreements contain certain restrictive covenants which require
the Company to, among other things, meet certain net worth and working
capital requirements along with maintaining various financial ratios.
As of September 30, 2000, the Company was not in compliance with
certain of the financial covenants contained in the loan agreements
with its principal lending institution. In December 2000, the Company's
principal lender waived its rights to accelerate repayment of the debt
arising from such covenant violations and agreed to amend those
covenants, which are considered by management to be more compatible
with the Company's current operations. Accordingly, the obligations are
classified on the accompanying consolidated balance sheet at September
30, 2000 according to their original repayment terms.
8. ACCRUED EXPENSES
Accrued expenses included on the accompanying consolidated balance
sheets consist of the following amounts at September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
--------------- ---------------
<S> <C> <C>
Sales discounts $ 1,084,919 $ 1,018,312
Compensation 300,343 788,200
Vacation and holiday pay 415,006 434,303
Taxes 439,738 607,510
Insurance 394,270 777,283
Other 1,106,176 1,056,548
--------------- ---------------
Total $ 3,740,452 $ 4,682,156
=============== ===============
</TABLE>
-40-
<PAGE> 41
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The provision (benefit) for income taxes for each of the three years in
the period ended September 30, consists of the following components:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9 1 9 9 8
----------- ------------ -------------
<S> <C> <C> <C>
Current federal provision (benefit) $ (199,000) $ 2,170,000 $ 1,315,000
Deferred provision (benefit) 155,000 (15,000) 115,000
----------- ------------ -------------
Total income taxes (benefit) $ (44,000) $ 2,155,000 $ 1,430,000
=========== ============ =============
</TABLE>
The effective income tax rate on consolidated pre-tax income differs
from the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9 1 9 9 8
------------ ---- ------------ ---- ------------- ----
Amount % Amount % Amount %
------------ ---- ------------ ---- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) computed
at statutory rate $ (44,000) 34 $ 2,155,000 34 $ 1,637,000 34
Nondeductible expenses 27,000 1 22,000 1 21,000 1
Cancellation of debt
related to EPCO restructuring -- -- -- -- (207,000) (4)
Other (27,000) (1) (22,000) (1) (21,000) (1)
------------ ---- ------------ ---- ------------- ----
$ (44,000) 34 $ 2,155,000 34 $ 1,430,000 30
============ ==== ============ ==== ============= ====
</TABLE>
The balance of the net deferred income tax liability consists of
temporary basis differences related to the following assets and
liabilities as of September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
--------------- ---------------
<S> <C> <C>
Taxable differences:
Property and equipment $ 3,101,000 $ 2,905,000
Inventory 1,143,000 1,100,000
--------------- ---------------
Gross deferred tax liabilities 4,244,000 4,005,000
--------------- ---------------
Deductible differences:
Product liability 402,000 478,000
Accounts receivable 313,000 193,000
Accrued expenses 812,000 889,000
Goodwill 362,000 245,000
--------------- ---------------
Gross deferred tax assets $ 1,889,000 $ 2,200,000
--------------- ---------------
Net deferred income tax liability $ 2,355,000 $ 2,220,000
=============== ===============
</TABLE>
The components which comprise gross deferred taxes are predominantly
noncurrent; as such, the entire related net liability is classified as
noncurrent.
-41-
<PAGE> 42
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE PENSION AND PROFIT SHARING PLANS
The Company and certain subsidiaries have qualified pension and profit
sharing plans covering substantially all union employees. Contributions
to the plans were calculated at an hourly rate as defined in the
various union contracts. The Company also maintains a defined
contribution pension plan qualified pursuant to Section 401(k) of the
Internal Revenue Code for certain union employees and all eligible
non-union employees. The Company makes matching contributions of
specified percentages of participants' compensation. The cost of all of
these plans was $729,183 in 2000, $673,480 in 1999, and $494,133 in
1998.
The Company has an employee stock bonus plan for full time, salaried
and non-union employees. Company contributions are discretionary each
year and are generally limited to 15% of participants' compensation. No
contributions were made for the years ended September 30, 2000, 1999
and 1998.
11. RELATED PARTY TRANSACTIONS
Leases
The Company leases an operating facility from siblings of the President
of McClain Industries, Inc. on a month-to-month basis with annual
rentals totaling $42,000 in each of the years ended September 30, 2000,
1999 and 1998.
Insurance Costs
Raymond Elliott, a director of the Company, is also the owner of
Hartland Insurance Group. That entity provided insurance at a cost of
approximately $1,466,000, $1,005,000, and $1,100,000 to the Company
during the years ended September 30, 2000, 1999 and 1998, respectively.
That entity received fees and commissions in connection with these
transactions of approximately $170,000, $117,500, and $116,000,
respectively.
Product Sales
The Company had product sales of approximately $282,500, $231,000, and
$590,000, during the years ended September 30, 2000, 1999 and 1998,
respectively, to a business controlled by the President of McClain
Industries, Inc.
-42-
<PAGE> 43
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK BASED COMPENSATION PLANS
The Company maintains the 1999 and 1989 Retainer Stock Plans for
Non-employee Directors and the McClain 1999 and 1989 Incentive Stock
Plans.
Retainer Stock Plans
The Retainer Stock Plans as adopted call for reserving 233,333 shares
of the Company's no par common stock and allows non-employee directors
the option to receive payment of all or a portion of their directors
fees in the form of shares of common stock at the fair value of such
shares on the date of issuance. For the years ended September 30, 2000,
1999 and 1998 the Company issued 7,350, 4,505, and 7,593 shares,
respectively, of its common stock to such directors in exchange for
services rendered.
Incentive Stock Plan
The Incentive Stock Plans as adopted call for reserving 2,333,333
shares of the Company's no par common stock for the granting of stock
awards to officers and key management personnel. The awards consist of
incentive stock option (ISO) or non-qualified options, stock
appreciation rights (SARs) and restricted share rights, and may be
granted at the following prices at the date of grant: incentive stock
options must be equal to or greater than the fair market value of
common stock; stock appreciation rights and restricted share rights may
be issued at a price which may not be less than 50% of the price of the
common stock. Shares which have been issued under these plans vest in
annual installments from the date of grant, over a three year period,
and expire within 5 years from the date of grant.
The following table presents a summary of stock option activity for
each of the years in the three year period ended September 30:
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9 1 9 9 8
------------------- ------------------- --------------------
Exercise Exercise Exercise
Shares Price * Shares Price * Shares Price *
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 269,665 $ 6.30 199,476 $ 6.30 191,391 $ 5.71
Granted -- -- 130,000 5.42 74,000 5.08
Exercised -- -- -- -- (30,825) 3.25
Forfeited/expired (57,665) 7.06 (59,811) 7.06 (35,090) 3.25
--------- -------- --------- -------- ---------- --------
Outstanding, end of year 212,000 $ 5.34 269,665 $ 5.71 191,391 $ 6.30
--------- -------- --------- -------- ---------- --------
Exercisable, end of year 102,982 $ 5.32 85,332 $ 6.50 164,491 $ 6.73
========= ======== ========= ======== ========== ========
</TABLE>
-43-
<PAGE> 44
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPTIONS AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Remaining
Contractual Exercise Exercise
Range of Exercise Prices Shares Life * Price * Shares Price *
------------------------------ ---------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
$5.00 to $5.50 197,000 3.0 years $ 5.30 87,982 $ 5.40
$5.51 to $6.00 15,000 1.2 years 5.75 15,000 5.75
---------- ----------- --------- --------- --------
Total 212,000 2.9 years $ 5.34 102,982 $ 5.45
========== =========== ========= ========= ========
</TABLE>
*Weighted average
The Company continues to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its employee stock options
issued pursuant to the 1999 and 1989 Incentive Stock Plan. Under APB
25, because the exercise price of employee stock options equals the
market price of the underlying common stock on the date of grant, no
compensation expense is recorded in the accompanying consolidated
statements of operations. There were no stock options granted during
fiscal 2000. Had stock option compensation expense been determined
pursuant to the methodology provided in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", using the Black-Scholes option pricing model, the
following weighted average assumptions for grants in 1999 and 1998
would have been employed: expected volatility of 71% and 66%, risk free
interest rate of 5.5%, and expected lives of 5 years. The pro-forma
effect on results of operations would have been a decrease in net
income by $223,000 and $121,000 for the years ended September 30, 1999
and 1998, respectively.
13. COMMON STOCK REPURCHASES
The Board of Directors has authorized the Company to repurchase from
time to time on the open market up to 500,000 shares of the Company's
common stock. During the year ended September 30, 2000, the Company
repurchased 102,567 shares at prices ranging from $3.87 to $5.97.
During the year ended September 30, 1999, the Company repurchased
30,354 shares at prices ranging from $3.375 to $5.75. During the year
ended September 30, 1998, the Company repurchased 96,179 shares at
prices ranging from $3.75 to $5.25 per share.
14. SUPPLEMENTAL CASH FLOWS INFORMATION
During the years ended September 30, 2000, 1999 and 1998, common stock
valued at $32,970, $25,123, and $31,127, respectively, was issued to
non-employee directors in exchange for services rendered.
Cash paid for interest amounted to $6,210,200 for 2000, $3,855,735 for
1999, and $3,356,571 for 1998. Cash paid for federal income taxes
amounted to $304,000 for 2000, $350,000 for 1999, and $-0- for 1998.
-44-
<PAGE> 45
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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.
-45-
<PAGE> 46
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information regarding the Company's operating segments follows:
<TABLE>
<CAPTION>
Manufacturing Truck Leasing
Operations Group Operations Totals
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
2000
----
Net sales $ 103,648,239 $ 37,469,720 $ -- $ 141,117,959
Lease revenues -- -- 5,391,613 5,391,613
Operating income 4,670,355 (1,675,215) 912,038 3,907,178
Interest expense 2,973,818 1,825,362 1,544,200 6,343,380
Income (loss) before
income taxes 2,458,685 (3,500,577) 912,038 (129,854)
Identifiable assets 86,921,342 11,641,505 25,122,066 123,684,913
Capital expenditures 2,953,102 -- -- 2,953,102
Depreciation
amortization 3,425,281 -- -- 3,425,281
1999
----
Net sales $ 105,024,800 $ 35,580,085 $ -- $ 140,604,885
Lease revenues -- -- 3,597,594 3,597,594
Operating income 7,327,614 368,844 810,653 8,507,111
Interest expense 2,283,630 988,496 710,199 3,982,325
Income (loss) before
income taxes 5,913,909 (387,624) 810,653 6,336,938
Identifiable assets 80,563,757 26,162,434 23,197,798 129,923,989
Capital expenditures 2,768,433 -- -- 2,768,433
Depreciation and
amortization 3,280,109 -- -- 3,280,109
1998
----
Net sales $ 95,143,347 $ 21,410,684 $ -- $ 116,554,031
Lease revenues -- -- 2,588,787 2,588,787
Operating income (loss) 6,677,317 743,721 (17,538) 7,403,500
Interest expense 2,809,504 -- 571,628 3,381,132
Income (loss) before
income taxes 4,087,709 743,721 (17,538) 4,813,892
Identifiable assets 83,883,371 5,569,526 10,794,070 100,246,967
Capital expenditures 965,246 -- -- 965,246
Depreciation and
amortization 3,395,115 -- -- 3,395,115
</TABLE>
Net sales for the Truck Group include sales of products manufactured by the
Company of $9,906,371, $9,129,104, and $4,551,877 for the years ended September
30, 2000, 1999, and 1998, respectively.
-46-
<PAGE> 47
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. COMMITMENTS AND 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 to the Company of $1,050,000.
A liability 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 September 30, 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.
-47-
<PAGE> 48
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. Management, based upon the opinion of
counsel, 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.
Sales Commitment
In connection with the purchase of a manufacturing facility in 1996,
the seller of the facility agreed to use reasonable commercial efforts
to purchase annually from the Company, manufactured products in an
amount that is not less than $25,000,000 in sales per year through
December 31, 2001. In the event the $25,000,000 is reached, the Company
has agreed to pay to the customer $1,200,000 during each year. In
addition, a 5% sales discount will be paid on sales in excess of
$25,000,000. If the customer purchases less than $25,000,000 annually,
the $1,200,000 amount is to be reduced in accordance with the terms of
the acquisition agreement. For the years ended September 30, 2000, 1999
and 1998 approximately $1,394,645, $1,308,000, and $1,327,000 has been
recorded as sales discounts in connection with post-acquisition sales
of $31,870,000, $32,500,000, and $33,642,000, respectively, made to the
customer pursuant to the agreement. On November 29, 1999, the Company
signed an amendment to this agreement that extended the contract
through December 31, 2003.
Health Insurance
The Company is self-insured for certain health benefits up to $100,000
per occurrence per individual, with an aggregate limitation of
$1,600,000 annually. The Company is self-insured for State of Michigan
workers' compensation up to $200,000 per occurrence, with an annual
limitation of $500,000 annually.
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.
* * * * *
-48-
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation of McClain Industries, Inc. (7)
3.2 Bylaws of McClain Industries, Inc. (1)
10.1 McClain Industries, Inc. 1989 Incentive Stock Plan (2)
10.2 McClain Industries, Inc. 1989 Retainer Stock Plan for Non- (2)
Employee Directors
10.3 Agreement of Purchase and Sale dated July 20, 1992 by and (4)
between Peabody International
Corporation, as Seller, and Galion Holding Company, as Buyer
10.4 Manufacture and License Agreement dated as of November 2, (6)
1992, between Galion Dump Bodies, as Licensor, and the
Company, as Licensee
10.5 Loan documents dated as of March 1, 1993, between the (6)
Company and Galion Dump Bodies and E-Z Pack
10.6 Guaranty Fee Agreement dated as of March 2, 1993, between (6)
Galion Holding and the Company
10.7 Purchase Agreement, dated as of March 30, 1993, between the (7)
Company and Group Properties III
10.8 Purchase Agreement, dated as of March 30, 1993, between the (7)
Company and Group Properties
10.9 Purchase Agreement, dated as of March 30, 1993, between the (7)
Company and Group Properties of Georgia
10.10 Commercial Mortgage, Assignment of Leases and Rents, Security (8)
Agreement and Financing Statement Dated February 6, 1995,
between Standard Federal Bank and the Company
10.11 Commercial Mortgage, Assignment of Leases and Rents, Security (8)
Agreement and Financing Statement Dated February 6, 1995,
between Standard Federal Bank and the Company
10.12 Second Amendment to Open-End Commercial Mortgage and (8)
Assignment of Lease and Rentals (Secures Future Advances)
dated February 6, 1995, between Standard Federal Bank and E-Z
Pack
10.13 Second Amendment to Open-End Commercial Mortgage and (8)
Assignment of Lease and Rentals (Secures Future Advances)
dated February 6, 1995, between Standard Federal Bank and
Galion Dump Bodies
10.14 Fifth Amendment to Open-End Commercial Mortgage and (8)
Assignment of Lease and Rentals (Secures Future Advances)
between Standard Federal Bank and Galion Dump Bodies dated
June 22, 1995.
10.15 Third Amended and Restated Promissory Note (Line of Credit) (8)
dated June 22, 1995, between Standard Federal Bank, Galion
Holding, E-Z Pack, Galion Dump Bodies and McClain
Group Sales of Florida
10.16 Security Agreement dated June 22, 1995, between Standard (8)
Federal Bank and McClain Group Sales of Florida
10.17 Fifth Amendment to Open-End Commercial Mortgage and (8)
Assignment of Lease and Rentals (Secures Future Advances)
dated June 22, 1995, between Standard Federal Bank and E-Z
Pack
10.18 Loan Agreement dated July 17, 1996, between Standard Federal (9)
Bank and Leasing
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10.19 Promissory Note (Line of Credit) dated July 17, 1996, between (9)
Standard Federal Bank and Leasing
10.20 Commercial Mortgage, Assignment of Leases and Rents, Security (9)
Agreement and Financing Statement dated August 29, 1996,
between Standard Federal Bank and McClain-Alabama.
10.21 Security Agreement dated August 29, 1996, between Standard (9)
Federal Bank and McClain-Alabama
10.22 Master Lease Agreement dated July 15, 1995 between Fifth Third (9)
Leasing Company and Leasing
10.23 Master Lease Agreement dated May 17, 1996 between NBD Bank (9)
and Leasing
10.24 Term Note dated January 17, 1997 between Trust Company Bank (10)
of Middle Georgia and the Company
10.25 Preliminary Placement Memorandum dated April 17, 1997 - The (10)
Industrial Development Board of the City of Demopolis Industrial
Development Revenue Bonds Series 1997 (McClain of Alabama,
Inc. Project)
10.26 Lease Agreement dated April 1, 1997 between the Industrial (10)
Development Board of the City of Demopolis and McClain of
Alabama
10.27 Trust Indenture Agreement dated April 1, 1997 between the (10)
Industrial Development Board of the City of Demopolis and LaSalle
National Bank
10.28 Bond Guaranty Agreement dated April 1, 1997 between LaSalle (10)
National Bank and McClain-Alabama
10.29 Mortgage, Assignment of Leases and Security Agreement dated (10)
April 1, 1997 from the Industrial Development Board of the City of
Demopolis and McClain-Alabama to Standard Federal Bank
10.30 Standard Federal Bank Irrevocable Letter of Credit dated April 23, (10)
1997
10.31 Placement Agency Agreement dated April 23, 1997 - The Industrial (10)
Development Board of the City of Demopolis Industrial
Development Revenue Bond Series 1997 (McClain of Alabama,
Inc. Project)
10.32 Remarketing Agreement dated April 23, 1997 among LaSalle (10)
National Bank, The Industrial Development Board of the City of
Demopolis and McClain of Alabama, Inc.
10.33 Loan Agreement dated April 16, 1998 between Standard Federal (11)
Bank and McClain Industries, Inc., McClain of Alabama, Inc.,
McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of
Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel Processing
Company, McClain Tube Company, Galion Holding Company,
McClain E-Z Pack, Inc., Galion Dump Bodies, Inc., McClain Group
Sales, Inc., and McClain Group Sales of Florida, Inc.
10.34 Promissory Note (Line of Credit) dated April 16, 1998 between (11)
Standard Federal Bank and McClain Industries, Inc., McClain of
Alabama, Inc., McClain of Georgia, Inc., McClain of Ohio, Inc.,
McClain of Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel
Processing Company, McClain Tube Company, Galion Holding
Company, McClain E-Z Pack, Inc., Galion Dump Bodies, Inc.,
McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10.35 Promissory Note (Term Loan) dated April 16, 1998 between (11)
Standard Federal Bank and McClain Industries, Inc., McClain of
Alabama, Inc., McClain of Georgia, Inc., McClain of Ohio, Inc.,
McClain of Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel
Processing Company, McClain Tube Company, Galion Holding
Company, McClain E-Z Pack, Inc., Galion Dump Bodies, Inc.,
McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
10.36 Promissory Note (Line of Credit Converting to Term Loan) dated (11)
April 16, 1998 between Standard Federal Bank and McClain
Industries, Inc., McClain of Alabama, Inc., McClain of Georgia,
Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain
EPCO, Inc., Shelby Steel Processing Company, McClain Tube
Company, Galion Holding Company, McClain E-Z Pack, Inc.,
Galion Dump Bodies, Inc., McClain Group Sales, Inc., and McClain
Group Sales of Florida, Inc.
10.37 Second Amendment Agreement, Loan Agreement, Promissory (11)
Note (Line of Credit) dated April 16, 1998 between Standard
Federal Bank and McClain Group Leasing, Inc.
10.38 McClain Industries, Inc. 1999 Incentive Stock Plan (12)
10.39 McClain Industries, Inc. 1999 Retainer Stock Plan for Non- (12)
Employee Directors
10.40 Amended and Restated Loan Agreement dated July 9, 1999 (12)
between Standard Federal Bank and McClain Industries, Inc.,
McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel
Processing Company, McClain Tube Company, McClain
International FSC, and McClain Southland Co.
10.41 Promissory Note (Line of Credit) dated July 9, 1999 between (12)
Standard Federal Bank and McClain Industries, Inc., McClain E-Z
Pack, Inc., McClain Galion, Inc., Shelby Steel Processing
Company, McClain Tube Company, McClain International FSC,
and McClain Southland Co.
10.42 Promissory Note (Term Loan) dated July 9, 1999 between (12)
Standard Federal Bank and McClain Industries, Inc., McClain E-Z
Pack, Inc., McClain Galion, Inc., Shelby Steel Processing
Company, McClain Tube Company, McClain International FSC,
and McClain Southland Co.
10.43 Promissory Note (Line of Credit Converting to Term Loan) dated (12)
July 9, 1999 between Standard Federal Bank and McClain
Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc.,
Shelby Steel Processing Company, McClain Tube Company,
McClain International FSC, and McClain Southland Co.
10.44 Third Amendment Agreement, Loan Agreement, Promissory Note (12)
(Line of Credit) dated July 9, 1999 between Standard Federal
Bank and McClain Group Leasing, Inc.
10.45 Second Amendment Agreement dated May 10, 2000 between 53
Standard Federal Bank and McClain Industries, Inc., McClain E-Z
Pack, Inc., McClain Galion, Inc., Shelby Steel Processing
Company, McClain Tube Company, McClain International FSC,
and McClain Southland Co.
10.46 Fourth Amendment Agreement, Loan Agreement, Promissory Note 58
(Line of Credit) dated May 10, 2000 between Standard Federal
Bank and McClain Group Leasing, Inc.
22 List of Subsidiaries (9)
27 Financial Data Schedule 61
</TABLE>
51
<PAGE> 52
<TABLE>
<S> <C>
(1) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/89
(2) Incorporated by reference to the Company's Registration Statement (33-29613)
(3) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/91
(4) Incorporated by reference to the Company's Form 8-K dated 7/27/92
(5) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/92
(6) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/93
(7) Incorporated by reference to the Company's Registration Statement on Form S-
2 (33-84562)
(8) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/95
(9) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/96
(10) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/97
(11) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/98
(12) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/99
</TABLE>
52
