SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
For the fiscal year ended Commission File Number: 1-8684
December 27, 1997
EXCEL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Indiana 35-1551685
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
1120 North Main Street, Elkhart, Indiana 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (219) 264-2131
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Shares, without
par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered under Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate 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.
<PAGE>
The number of shares of the Registrant's Common Shares, no par
value, outstanding on February 18, 1998 was 12,425,515. The
aggregate market value of the Registrant's Common Shares held by
nonaffiliates on March 11, 1998 was $235,988,252.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Excel Industries, Inc. proxy statement for
the 1998 annual meeting of shareholders are incorporated by
reference into Part III of this report.
PART I.
Item 1. Business
General
The registrant, an Indiana corporation (Company), is a
technically innovative tier-one and tier-two supplier to the
automotive, recreational vehicle, heavy truck, and bus
industries. It produces window, door and seating systems and
injection molded plastic parts for the North American automotive
original equipment manufacturers (OEM's)(Light Vehicle Products
Segment) and appliances, window, door and seating systems and
hardware products for the recreational vehicle, mass transit and
heavy truck industry (RV/MT/HT Products Segment). The Company
is the leading independent supplier of window systems to the
combined automotive, light truck and van, bus and recreational
vehicle markets in North America.
Business Strategy
The Company's business objective is to profitably expand its
position as a leading independent supplier of high quality,
technically innovative products to the Light Vehicle Products
Segment and the Recreational Vehicle, Mass Transit and Heavy
Truck Products Segment. It also intends to broaden its product
offerings to these markets, as well as expand its capabilities
to complementary markets. Continued focus on achieving
recognition as a world class manufacturer is a key component of
this strategy. The Company continually strives for world class
status through technical innovation, quality excellence, cost
competitiveness and strategic alliances and acquisitions.
Light Vehicle Products Segment
Products. The Company designs, engineers, manufactures and
supplies plastic and metal framed window assemblies, manual and
power window regulator systems, manual seat systems and
injection molded plastic products principally for North American
car and light truck OEMs. The Company does not manufacture or
sell primary glass. Window and door systems products include
various types of automotive windshields, rear, vent, quarter,
push out and sliding windows; and window regulator systems,
latches, door frames, hinges and related components. Seat
systems include seat and height adjusters and recliner
mechanisms. Other products for the Light Vehicle Products
Segment include hood and deck hinges; control systems which
include transmission selectors; and a variety of injection
molded plastic parts.
Customers and Marketing. The Company supplies its products
primarily to Ford, Chrysler and General Motors. Total sales to
these three customers for the three years ended December 27,
1997 were approximately 86% in 1995, 65% in 1996 and 59% in
1997. (For a detailed breakdown by customer see Note 11 of
Notes to Consolidated Financial Statements included elsewhere
herein). The loss of any of these as a customer would have a
material adverse effect on the Company.
Sales of the Company's products to OEMs are made directly
by the Company's sales company, Excel Industries of Michigan,
Inc., Southfield, Michigan, which is responsible for the sales
and engineering activity. Through this sales and engineering
office, the Company services its OEM customers and manages its
continuing programs of product design, development and
improvement.
The Company's customers award contracts that normally
cover parts to be supplied for a particular vehicle model. Such
contracts typically extend over the life of the model, which is
generally four to seven years. During the year customers issue
releases under the contracts and accordingly the Company does
not have a significant backlog of orders. The primary risk to
the Company is that an OEM will produce fewer units of a model
than anticipated. In addition, the Company competes for new
business to supply parts for successor models and therefore runs
the risk that the OEM will not select the Company to produce
parts on a successor model. In order to reduce its reliance on
any one model, the Company produces parts for a broad cross-
section of both new and more mature models. The Company has
been chosen as a supplier on a variety of generally successful
car, light truck and van models.
Based on its ability to service its OEM customers' needs
effectively, the Company believes it will be able to maintain
its position on most existing models, while also expanding into
new models as further consolidation in the OEM supplier base
occurs.
Competition. The Company operates in a highly competitive
environment in the Light Vehicle Products Segment. The number
of the Company's competitors in the automotive markets is
expected to decrease due to the supplier consolidation resulting
from changing OEM policies. The Company's major competitors
include Donnelly Corporation, Libbey-Owens-Ford Co., Guardian
Industries, Rockwell International, Magna International, OEM
internal operations and a large number of smaller operations.
The Company principally competes for new business both at
the beginning of the development of new models and upon the
redesign of existing models by its major customers. New model
development generally begins two to four years prior to the
marketing of such models to the public. Once a producer has
been designated to supply parts to a new program, an OEM will
generally continue to purchase those parts from the designated
producer for the life of the program. Competitive factors in
the market for the Company's products include product quality,
design and engineering competence, customer service, product
mix, new product innovation, cost and timely delivery. The
Company believes that its business strategy allows it to compete
effectively in the markets for its products.
The Company believes that it is well-positioned to succeed
in this highly competitive supplier environment. The Company's
size, emphasis on quality, customer service orientation,
manufacturing expertise and technological leadership all
contribute to the Company's success in the Light Vehicle
Products Segment.
Strategic Alliances. In 1986, Ford entered into a supply
agreement (the Supply Agreement) with the Company. Pursuant to
the Supply Agreement, Ford agreed to purchase from the Company
at least 70% of the requirements by dollar volume of Ford and
Ford Canada for modular framed glass parts using RIM and
polyvinyl chloride (PVC) technology, commencing with the 1990
model year. Ford's purchase obligations are contingent upon the
Company being competitive as to technology, quality, service,
price and delivery. The Supply Agreement, which is currently
scheduled to expire at the end of the 1998 model year, has been
complemented by a supply agreement between Ford and the Company
dated January 31, 1994 (the 1994 Supply Agreement), which
extends through the 1998 calendar year and which provides for
Ford to purchase 100% of its requirements for those parts
currently supplied by the Company (including parts other than
modular windows), subject to specified annual price reductions.
The Company expects that the 1994 Supply Agreement will be
replaced by a new five-year supply agreement on terms similar to
the 1994 Supply Agreement. The Company does not believe that
the expiration of the Supply Agreement or the 1994 Supply
Agreement will have a material effect on the Company's sales to
Ford. Since 1990, the Company has and is continuing to supply
approximately 70% of Ford's requirements for modular framed
glass, which have predominately been modular windows using RIM
technology. The Company works closely with Ford during the
development and production by Ford of new products utilizing
parts supplied by the Company, and net sales to Ford have
increased from $26.7 million in 1985 to $392.9 million in 1997.
The Company also benefits from an exclusive purchase and
supply agreement with H.S. Die & Engineering of Grand Rapids,
Michigan. H.S. Die supplies the molds (i.e., tooling) to the
Company necessary to manufacture modular windows. Working
closely with OEMs and H.S. Die, the Company is able to move
rapidly from design to finished tooling for modular windows. As
a result of this alliance, preproduction lead-times on new
programs have been decreased by more than a year.
Another strategic alliance links the Company with Schade
KG, a modular and conventional window and door systems supplier
located in Plettenberg, Germany. Pursuant to a Reciprocal
Technology License and Cooperative Venture Agreement, both
companies have cooperated in developing new business proposals.
Schade helped the Company develop technical capabilities in door
frames and PVC modular windows. The Company commenced
production of PVC modular windows in 1993 and currently supplies
PVC modular windows and door frames for several models. On
March 13, 1998, the Company signed a definitive agreement to
acquire for cash 70 percent of Schade. In addition to the
purchase price of approximately $10 million, an additional $15.5
million will be added to equity to strengthen the financial
position of Schade and an additional $2.5 million will be used
to purchase existing loans. The transaction is expected to
become effective on July 1, 1998.
The Company together with another manufacturer of
automotive parts owns 51% of Pollone S.A., a Brazilian
automotive parts supplier. The Company's interest in Pollone
S.A. provides a manufacturing base to supply products to the
South American markets.
Recreational Vehicle, Mass Transit and Heavy Truck Products
Segment
Products. Primary products for recreational vehicles include:
appliances such as water heaters, furnaces, stoves and ranges;
hardware such as jacks, couplers and surge brake actuators;
seating frames and seat adjusters and recliner mechanisms;
preassembled doors and windows for class A motor homes; glass or
plastic glazed window assemblies for mass transit systems; and
wing ventilator and fixed and moveable windows for heavy trucks.
Customers and Marketing. Major customers in the RV, Mass
Transit and Heavy Truck Products Segment include Fleetwood,
Winnebago, Damon, Jayco, Thor, Coachmen, Motor Coach Industries
and Navistar. Separate sales and engineering groups are located
in Rockford, Illinois and Elkhart, Indiana to service customers
in this business segment. Similar to the automotive industry,
customers in the RV, Mass Transit and Heavy Truck Products
Segment generally issue purchase orders for products on an
annual basis and periodically issue releases against those
purchase orders. Accordingly, this segment does not have a
significant backlog of orders at any particular time.
Competition. The RV industry is very competitive with more than
10 competitors and although no one competitor competes across
all product lines, the following four are significant: Suburban;
Magic Chef; Hammerblow; and Hehr International.
Engineering, Research and Development
The Light Vehicle Products Segment expended approximately $12.9
million, $14.0 million and $21.0 million on engineering,
research and development during 1995, 1996 and 1997,
respectively. These increased expenditures have significantly
improved capacity to provide complete engineering and design
services to support its product lines. A corporate technical
center is located in Elkhart, Indiana for basic research and
development, as well as a large engineering and design staff in
the Detroit area which works closely with automotive OEMs during
all phases of new product development and production.
Product engineering, research and development costs for
Recreational Vehicle, Mass Transit and Heavy Truck Products
Segment totaled $4.2 million in 1997 and $3.2 million in 1996.
Amounts spent in 1995 were not material.
Foreign Operations
The Company's foreign operations consists of a Mexican
manufacturing facility. This facility was acquired in
connection with the acquisition of Anderson in 1996. Total
sales from this facility were $8,707,000 in 1997 and $3,186,000
in 1996.
Employees
The Company employs a total of approximately 6,400 persons, of
whom approximately 24% are covered by collective bargaining
agreements. The Company believes its relationship with its
employees is good.
Environmental Matters
The Company believes it is in substantial compliance with
federal, state, local and foreign laws regarding discharge of
materials into the environment and does not anticipate any
material adverse effect on its future earnings, capital
expenditures or competitive position as a result of compliance
with such laws.
For a discussion of potential environmental liabilities,
see "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Liquidity and Capital
Resources" and Note 13 to the Company's Consolidated Financial
Statements included elsewhere herein.
Seasonality
The Light Vehicle Products Segment normally experiences reduced
sales volume in the months of July, August and December as
vacation periods, model change over and start-up and, in the
case of December, holidays which commence prior to Christmas and
run through New Years, affect the number of production days.
The RV/MT/HT Products Segment is seasonal in that sales in the
quarter October through December are normally at reduced levels.
Item 2. Properties
The Company operates 23 manufacturing facilities, all of which
are in good condition. Except as noted below, the Company owns
all of these facilities.
<TABLE>
<CAPTION>
Approximate
Building Size
Location (in square feet)
Light Vehicle Products Segment
<S> <C> <C>
Elkhart, Indiana 270,000 (1)
Jacksonville, Florida 260,000
Lawrenceburg, Tennessee 150,000
Fulton, Kentucky 80,000 (2)
Bowling Green, Kentucky 32,000
Mishawaka, Indiana 120,000
Toledo, Ohio 61,000 (3)
Pikeville, Tennessee 102,000 (4)
Southfield, Michigan 43,000 (3)
Stockton, Illinois 145,000
Mount Carroll, Illinois 39,000
West Union, Iowa 181,000
Jonesville, Michigan 150,000
Henry, Tennessee 114,000
Queretaro, Mexico 58,000 (3)
Recreational Vehicle, Mass Transit and Heavy Truck Products
Segment
Rockford, Illinois 116,000
Rockford, Illinois 50,000
Greenbrier, Tennessee 57,000
Elkhart, Indiana 122,000
Elkhart, Indiana 30,000 (3)
LaGrange, Indiana 140,000
Salt Lake City, Utah 67,000
Salt Lake City, Utah 48,000
</TABLE>
(1) Approximately 35,000 square feet of this facility houses
the Company's executive offices and approximately 140,000
square feet of the facility are used for manufacturing and
the Corporate Technical Center.
(2) The Company leases the Fulton, Kentucky facility pursuant
to a lease which expires in 2000. The Company is entitled
to extend the term of the lease for four (4) additional
terms of three (3) years each and may, at its option,
purchase the facility at any time during the lease.
(3) The Company leases these facilities on short to medium term
leases generally with options to renew. Lease rates are at
competitive levels.
(4) The Company leases the Pikeville, Tennessee facility
pursuant to a Lease Purchase Contract entered into as part
of agreements for the issuance of two series of industrial
development bonds. Title to the facility will be
transferred to the Company for Ten Dollars ($10.00) on
completion of payment on the bond issues on July 1, 1999.
Rent is payable semi-annually with respect to the Series A
bonds and is equal to the principal and interest due on the
bonds. Semi-annual principal payments on the Series A
bonds currently are $75,000.
The Company believes that the properties and equipment are
in good operating condition and are adequate for the business
use intended. Utilization of the facilities varies with North
American light vehicle production and general conditions of the
economy. It is estimated that current capacity utilization
overall is approximately 70% to 75%.
Item 3. Legal Proceedings
On February 22, 1993, the United States filed a lawsuit in the
United States District Court for the Northern District of
Indiana against the Company and certain other parties. On July
20, 1993, the Indiana Department of Environmental Management
(IDEM) joined the lawsuit. The lawsuit seeks recovery of the
costs of enforcement, prejudgment interest and an amount in
excess of $6.8 million, which represents costs incurred to date
by the United States Environmental Protection Agency (EPA) and
IDEM in connection with the contamination of soil and
groundwater on the Company's property in Elkhart, Indiana, and a
well field of the City of Elkhart in close proximity to the
Company's facility. The lawsuit also seeks a declaration that
the Company and the other defendants are liable for any future
costs incurred by the EPA and IDEM in connection with the site.
The Company does not believe the outcome of the lawsuit will
materially affect its financial condition, liquidity or results
of operations.
For further information, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and
Note 13 to the Company's Consolidated Financial Statements
included elsewhere herein.
Item 4. Submission of Matters to Vote of Security Holders
There were no matters submitted to a vote of shareholders during
the fourth quarter of 1997.
Executive Officers of the Company
The names and ages of all executive officers of the Company,
positions and offices held by each of them and the period during
which each such person has served in these offices and positions
is set forth below:
<TABLE>
<CAPTION>
Name Age Position and Offices
<S> <C> <C>
James O. Futterknecht, Jr. 51 Chairman, President and Chief
Executive Officer
Joseph A. Robinson 59 Senior Vice President and
Chief Financial Officer
James E. Crawford 51 Vice President, Engineering
and Program Management,
Automotive Systems
Louis R. Csokasy 50 Vice President and President-
Automotive Systems
Terrance L. Lindberg 55 Vice President and President-
Mass Transit, RV and Heavy
Truck Window and Door Systems
James M. Krzyzewski 50 Vice President and President-
Plastic Products
Michael C. Paquette 56 Vice President, Corporate
Human Resources
Robert A. Pickering 55 Vice President and President-
Atwood Mobile Products
Ike K. Eikelberner 50 Vice President and Corporate
Controller
</TABLE>
Mr. Futterknecht joined the Company in 1970, was Vice President
- - Corporate Sales from 1976 until 1984, was Vice President -
Automotive Products from 1984 until 1987, was Vice President -
Automotive Sales and Engineering from 1987 to 1990, was
Executive Vice President from 1990 to 1992, and was President
and Chief Operating Officer from 1992 to 1995. He was appointed
as a director in 1992 and elected as Chairman and Chief
Executive Officer in September of 1995.
Mr. Robinson joined the Company as Secretary, Treasurer and
Chief Financial Officer in December 1991 and was appointed as a
director in 1992. Prior to that time, he was employed by the
Standard Products Co., a manufacturer of automotive parts as
Vice President from 1990 to 1991 and as Vice President - Finance
from 1976 to 1990.
Mr. Crawford joined the Company in 1978, was Product Engineering
Manager from 1979 until 1984, was Vice President -
Engineering/Research from 1984 until 1987, Vice President -
Modular Operations from 1987 to 1988, Vice President - Group
Operations/Modular Products from 1988 to 1992, Vice President -
Product Development and Value Engineering from 1992 to 1995,
Vice President and Managing Director - Value Management and
Product Research and Development from 1995 to 1997. In 1997, he
was appointed Vice President, Engineering and Program
Management, Automotive Systems.
Mr. Csokasy joined the Company in 1972. He was General Manager
- - Recreational Vehicles from 1985 to 1987, Manager of Corporate
Engineering from 1987 to 1990, Vice President - Engineering from
1990 to 1992, Vice President - Engineering and Quality from 1992
to 1995. He is currently Vice President and President -
Automotive Systems.
Mr. Lindberg joined the Company in 1983, was Manager of Mass
Transit and Heavy Truck Products from 1984 to 1987, was Manager
of Group Operations from 1987 until 1990, was Vice President -
Group Operation from 1990 to 1992 and was Vice President -
Specialty Products and General Manager - Nyloncraft from 1992 to
1995. He is currently Vice President and President - Mass
Transit, RV and Heavy Truck Window and Door Systems.
Mr. Krzyzewski joined the Company in 1975, was General Manager
of the Belvedere division from 1984 to 1987, was Manager,
Business Strategy and Development from 1987 to 1990, and was
Director, Business Strategy and Development from 1990 to 1995.
He is currently Vice President and President - Plastic Products.
Mr. Paquette joined the Company in 1995 as Vice President,
Corporate Human Resources. Prior to that and since 1983, he was
Vice President of Human Resources for the Power Generation Group
of Cummins Engine Company, a Columbus, Indiana manufacturer of
diesel engines and related components.
Mr. Pickering joined Atwood Industries in 1989. He was Vice
President - Manufacturing 1989 to 1991 and President - Atwood
Mobile Products from 1991. He was elected a Vice President of
the Company in December, 1996. He is currently Vice President
and President - Atwood Mobile Products.
Mr. Eikelberner joined the Company in 1976, was Controller -
Nyloncraft Division from 1989 to 1991, was Corporate Controller
from 1991 to 1996 and elected a Vice President in December,
1996.
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters
The Common Shares of the Company are traded on the New York
Stock Exchange under the symbol EXC. The following table sets
forth for the fiscal periods indicated the high and low sale
prices of the Common Shares, as reported by the New York Stock
Exchange, and dividends declared per share.
<TABLE>
<CAPTION>
Dividends
Share Prices Declared
High Low Per Share
Fiscal Year Ended December 28, 1996:
<S> <C> <C> <C>
1st Quarter 14.000 10.875 .110
2nd Quarter 16.250 10.750 .110
3rd Quarter 17.000 13.000 .110
4th Quarter 16.375 14.125 .125
Fiscal Year Ended December 27, 1997:
<S> <C> <C> <C>
1st Quarter 15.125 20.625 .125
2nd Quarter 16.875 20.250 .125
3rd Quarter 16.875 25.625 .125
4th Quarter 17.500 20.000 .125
</TABLE>
As of February 19, 1998, there were 525 holders of record
of the Common Shares.
The Company has paid cash dividends every quarter since
becoming a public company in April 1984. The Company intends to
continue to pay quarterly cash dividends on its Common Shares,
but the payment of dividends and the amount and timing of such
dividends will depend upon the Company's earnings, capital
requirements, financial condition and other factors deemed
relevant by the Company's Board of Directors. The Company's
7.78% Senior Notes debt agreement contains certain restrictive
covenants pertaining to dividends. Currently, the Company has
available for payment of dividends $44,417,000 of retained
earnings.
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Amounts in thousands, except per share amounts)
The following table presents selected consolidated financial
data of the Company as of and for the five fiscal years ended
December 27, 1997. The selected consolidated financial data
have been derived from audited consolidated financial statements
of the Company. Such selected consolidated financial data
should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and
the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere herein. The comparability of
the results for the periods presented is significantly affected
by certain events, as described in "Management's Discussion and
Analysis of Results of Operations and Financial Condition -
General."
<TABLE>
Income Statement Data:
<CAPTION>
Fiscal Year Ended,
Dec 31, Dec 31, Dec 30,
1993 1994 1995
<S> <C> <C> <C>
Net sales $ 515,681 $ 607,183 $ 596,014
Cost of goods sold 463,943 545,817 540,716
Gross profit 51,738 61,366 55,298
Selling, administrative
and engineering expenses 30,054 32,723 32,973
Gain on disposal
of Canadian facility -- -- 1,582
Other income, net 2,015 2,145 3,805
Interest expense 3,474 3,406 3,322
Income before income taxes 20,225 27,382 24,390
Income tax provision 7,785 10,131 8,125
Net income 12,440 17,251 16,265
Net income per share:
Basic 1.23 1.60 1.52
Diluted 1.15 1.46 1.41
Cash dividends per share .30 .37 .44
Average shares outstanding 10,122 10,805 10,690
</TABLE>
<TABLE>
Balance Sheet Data:
<CAPTION>
Dec 31, Dec 31, Dec 30,
1993 1994 1995
<S> <C> <C> <C>
Working Capital $ 94,761 $ 96,145 $ 91,453
Property, plant and
Equipment 49,746 62,876 68,997
Total assets 229,316 254,630 269,518
Current portion of
long-term debt 1,553 1,358 9,164
Long-term debt (less current
portion) 35,094 33,578 24,021
Shareholders' equity 106,436 122,643 134,317
Book value per share 10.07 11.48 12.55
Long-term debt to total
Capitalization 25% 21% 15%
</TABLE>
<TABLE>
Income Statement Data:
<CAPTION>
Fiscal Year Ended,
Dec 28, Dec 27,
1996 1997
<S> <C> <C>
Net sales $ 887,741 $ 962,333
Cost of goods sold 783,375 846,990
Gross profit 104,366 115,343
Selling, administrative
and engineering expenses 65,652 79,267
Gain on disposal
of Canadian facility -- --
Other income, net 1,736 1,930
Interest expense 9,784 10,984
Income before income taxes 30,666 27,022
Income tax provision 11,550 9,458
Net income 19,116 17,564
Net income per share:
Basic 1.79 1.59
Diluted 1.62 1.48
Cash dividends per share .455 .50
Average shares outstanding 10,709 11,079
</TABLE>
<TABLE>
Balance Sheet Data:
<CAPTION>
Dec 28, Dec 27,
1996 1997
<S> <C> <C>
Working Capital $ 114,140 $ 116,550
Property, plant and
equipment 159,775 160,968
Total assets 443,234 457,797
Current portion of
long-term debt 9,554 2,672
Long-term debt (less current
portion) 123,452 105,943
Shareholders' equity 150,725 185,315
Book value per share 14.06 14.93
Long-term debt to total
Capitalization 45% 36%
</TABLE>
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
The Company was founded in 1928 and became a public company in
April 1984. In April 1996, the Company acquired all of the
outstanding common shares of Anderson Industries, Inc.,
(Anderson) located in Rockford, Illinois. Anderson is a holding
company whose main asset is Atwood Industries, Inc. (Atwood).
Atwood manufactures seat systems, including seat and height
adjusters, recliner mechanisms, transmission selectors and hood
and deck hinges, all for the automotive industry. In addition,
Atwood produces appliances such as water heaters, furnaces,
stoves and ranges, hardware, such as jacks, couplers and surge
brake actuators, seating frames, seat adjusters and recliner
mechanisms for the recreational vehicle industry. With this
acquisition, the Company has established lines of business to
distinguish activities for the light vehicle segment separate
from the recreational vehicles, mass transit and heavy truck
segment (RV/MT/HT). Prior to 1996, the Company operated in
predominately the light vehicle industry. The comparability of
the Company's results on a period-to-period basis is
significantly affected by this acquisition.
The light vehicle products segment normally experiences
reduced sales volumes in the months of July, August and December
as vacation periods, model changeover and start-up and, in the
case of December, holidays which commence prior to Christmas and
run through New Years affect the number of production days. The
RV/MT/HT products segment is seasonal in that sales in the
quarter October through December are normally at reduced levels.
Results of Operations
1997 Compared to 1996
Sales for the year ended December 27, 1997 totaled $962.3
million, up $74.6 million or 8% from the preceding year. The
Anderson acquisition added $98.2 million in sales in the first
quarter of 1997. This increase was offset by reductions in
parts shipped for passenger cars and selling price reductions on
products under long-term pricing agreements. Specifically,
passenger car production in 1997 for the Company's largest
customer, Ford Motor Company, was 10% lower than the previous
year. Also, discontinued programs such as Aerostar, Thunderbird
and Cougar adversely affected sales by $10.7 million. These
items, including the Anderson acquisition, accounted for the
change in sales for the current year to $750.1 million for the
light vehicle segment from $719.4 million in 1996. Sales for
the current year for the RV/MT/HT segment were $212.2 million,
up from $168.3 million in 1996, due primarily to the Anderson
acquisition. Future sales trends show reductions in the light
vehicle segment due to the discontinued models.
Gross profit totaled $115.3 million, or 12.0% of sales, as
compared with $104.4 million, or 11.8% of sales for the prior
year. The increase was due to the addition of the Anderson
locations offsetting approximately $4.1 million in start-up
costs on new programs and approximately $4.7 million in costs
associated with the closure of two domestic plants. Gross
profit for the current year was $75.7 million or 10.0% of sales
for the light vehicle segment compared to $72.2 million or 10.0%
of sales in 1996. Gross profit for the RV/MT/HT segment was
$39.6 million or 18.7% of sales in 1997 compared to $32.2
million or 19.1% of sales in 1996.
Selling, administrative and engineering expenses totaled
$79.3 million or 8.2% of sales for 1997, up from $65.7 million
or 7.4% of sales in 1996. The increase was due to the addition
of Anderson locations, increases in product development expenses
and $1.2 million in costs associated with the closure of the
Italian operation.
Interest costs of $11.0 million for 1997 increased from
$9.8 million in 1996 due to the Senior Notes issued in
connection with the Anderson acquisition in 1996. Interest
income of $2.0 million in 1997, recorded in other income, was up
slightly from $1.8 million in 1996.
The income tax provision was 35% of pre-tax income in
1997, down from 37.7% in the preceding year. The decrease was
due to lower estimated state income taxes and favorable benefits
of the Company's foreign sales corporation.
1996 Compared to 1995
Sales for the year ended December 28, 1996 totaled $887.7
million, up $291.7 million or 49% from 1995. The acquisition of
Atwood added $284.9 million in 1996. The remainder of the
increase was due to a slight increase in overall automotive
volumes as selling prices remained stable. Increases in
production of our products for light trucks and sport utility
vehicles were offset by decreases in production for passenger
cars. Sales for the current year were $719.4 million for the
light vehicle segment and $168.3 million for the RV/MT/HT
segment.
Gross profit totaled $104.4 million, or 11.8% of sales, as
compared with $55.3 million, or 9.3% of sales for the prior
year. Gross profit from the Atwood acquisition amounted to
$34.5 million or 12.1% of sales. The higher gross margin from
Atwood had the effect of increasing overall gross margin by .2
percentage point. The remaining improvement in margin results
from continued cost reductions and absence of significant launch
costs.
Selling, administrative and engineering expenses totaled
$65.7 million or 7.4% of sales for 1996, up from $33.0 million
or 5.5% of sales in 1995. The Atwood acquisition added $28.1
million of selling, administrative and engineering expenses.
The remainder of the increase was due to increases in salaries,
fringes, legal and professional fees and costs associated with
engineering design and development activities.
Interest costs of $9.8 million for 1996 increased from
$3.3 million in 1995 due to the increased long-term debt
outstanding including the new Senior Notes issued in connection
with the Anderson acquisition. Interest income of $1.8 million
in 1996, recorded in other income, was down from $2.1 million in
1995 due to reductions in marketable securities held. Also
included in other income in 1995 was a $1.5 million gain on
executive life insurance.
Included in 1995 was a gain on the disposition of Excel
Metalcraft, Ltd., located in Aurora, Ontario in the amount of
$1,582,000 which amounted to 9 cents per share after income
taxes. This gain included the return to profits of $970,000 of
the restructuring reserve which was created in 1992. The final
phase of the restructuring was completed with the sale of the
shares of Metalcraft.
The income tax provision was 37.7% of pre-tax income in
1996 up from 33.3% in 1995. The previous year reflected the
impact of the non-taxable executive life insurance proceeds and
a higher level of income from investing in tax-free securities.
Liquidity and Capital Resources
Working capital totaled $117 million as of December 27, 1997,
and the current ratio was 1.9 to 1. Cash and marketable
securities totaled $26.7 million as of December 27, 1997, a
decrease of $3.8 million from the prior year.
In 1997, cash flow from operations totaled $40.5 million,
compared to $69.8 million in 1996. The decrease was due to
accounts receivable increasing by $13.6 million due to tooling
billed to customers in the fourth quarter of 1997 and tooling to
be billed increasing by $5.1 million due to new programs.
Dividends increased to $5.6 million from $4.9 million due to
raising dividends per share in the fourth quarter of 1996 from
$.11 to $.125 and the additional common shares issued for the
conversion of the 10% convertible subordinated notes in October,
1997.
Long-term debt of $105.9 million as of December 27, 1997,
or 36% of total capitalization, is down from $123.5 million at
the beginning of the year due to the conversion of the 10%
convertible subordinated notes.
Expenditures for capital equipment in 1997 were $39.3
million up from $29.2 million in 1996 and $21.7 million in 1995.
The increase in 1997 was mainly due to manufacturing equipment
for new products. Capital additions consisting mainly of
machinery and equipment totaled $32.9 million in the light
vehicle segment and $5.9 million in the RV/MT/HT segment.
Capital expenditures for 1998 are budgeted at $42 million.
Starting in 1998, it is the Company's intent to change the
method of depreciating new capital expenditures from accelerated
methods to the straight-line method. The Company's cash
balances, operating cash flows and short-term lines of credit
are expected to be adequate for anticipated capital and
operating requirements in 1998.
In the first quarter of 1997 the Company recorded an $8.7
million pre-tax restructuring reserve for closing manufacturing
facilities in 1997 at Rockford, Illinois and Battle Creek,
Michigan which had been acquired as part of the acquisition of
Anderson. The reserve consists of personnel related costs
(mainly severance pay and fringe benefits) and costs related to
the disposals of buildings and equipment. The reserve increased
the associated goodwill by $5.4 million (which is net of income
taxes) and was not a charge to earnings. Total charges to the
reserve (personnel related costs and costs related to the
disposals of buildings and equipment) in 1997 were $5.4 million.
Any excess reserves remaining at the completion of those
restructuring activities will be recorded as a reduction in
goodwill. Also in 1997, the Company incurred additional
expenses including relocation, start-up and other related costs
not covered by the reserve of approximately $4.7 million pretax
or about 28 cents per share after tax.
In January, 1997, the Company completed the purchase of
the assets of The Compliance Group located in Greendale,
Wisconsin for approximately $2.4 million in cash. The excess of
the purchase price over the estimated fair value of assets
acquired ($2.5 million) has been accounted for as goodwill and
is being amortized over 15 years using the straight-line method.
In May, 1997, the Company completed the sale for $2.9
million of the automotive parking brake product line, which was
acquired when the Company purchased Anderson. Sales were
approximately $6 million in 1997 and $12 million in 1996 or less
than 2% of total sales. At the date of the Anderson
acquisition, this asset was held for sale and the gain was
recorded as an adjustment to goodwill.
In September, 1997, the Company announced the closure of
the Italian manufacturing division of its Atwood Mobile Products
subsidiary. Closing expenses recorded in the third quarter were
$1,242,000. Historically, this division has had annual sales of
approximately $2.5 million and losses in excess of $1 million.
Losses in 1997 were approximately $900,000.
The Company entered into a 1994 Supply Agreement with Ford
which requires the absorption of the effects of inflation and
requires specified price reductions or productivity offsets to
price reductions. The Company believes that this type of
agreement is typical in the automotive supply business, and the
Company's ability to maintain gross margins at or near their
present levels will be dependent on its ability to substantially
offset the effects of this and other such agreements through
productivity improvements, cost reduction programs and
implementation of value analysis/value engineering programs,
which reduce part weight and system costs to the customer.
A chemical cleaning compound, trichloroethylene (TCE), has
been found in the soil and groundwater on the Company's property
in Elkhart, Indiana, and in 1981, TCE was found in a well field
of the City of Elkhart in close proximity to the Company's
facility. The Company has been named as one of nine potentially
responsible parties (PRPs) in the contamination of this site.
In early 1992, the United States Environmental Protection Agency
(EPA) issued a Unilateral Order under Section 106 of the
Comprehensive Environmental Response, Compensation and Liability
Act which required the Company and other PRPs to undertake
remedial work. The Company and the other PRPs have reached an
agreement regarding the funding of groundwater monitoring and
the operation of the air-strippers as required by the Unilateral
Order. The Company was required to install and operate a soil
vapor extraction system to remove TCE from the Company's
property. A lawsuit seeks recovery of the costs of enforcement,
prejudgment interest and an amount in excess of $6.8 million,
which represents costs incurred to date by the EPA and the
Indiana Department of Environmental Management (IDEM), and a
declaration that eight defendant PRPs are liable for any future
costs incurred by the EPA and the IDEM in connection with the
site. On August 21, 1996 the United States Department of
Justice lodged with the United States District Court for the
Northern District of Indiana a proposed partial consent decree
which specifies payment of Federal Past Response Costs from
certain PRPs which for Excel amounted to approximately $3.2
million which together with amounts due IDEM would bring Excel's
total obligation to approximately $3.4 million, which has been
accrued by the Company. Comments objecting to the consent
decree were lodged with the United States Department of Justice
(USDOJ) and the court. In responding to those objectives, USDOJ
restated its support for the consent decree to the court on May
23, 1997. The consent decree has not yet been accepted by the
court.
The Company does not believe the annual cost to the
Company of monitoring groundwater and operating the soil vapor
extraction system and the air-strippers will be material. Each
of the PRPs, including the Company, is jointly and severally
liable for the entire amount of the EPA Costs. The Company
believes that adequate provisions have been recorded for its
costs and its anticipated share of EPA Costs and that its cash
on hand, unused lines of credit or cash from operations are
sufficient to fund any required expenditures.
The Company has been named a PRP for costs at seven other
disposal sites. The remedial investigations and feasibility
studies have been completed, and the results of those studies
have been provided to the appropriate agencies. The studies
indicated a range of viable remedial approaches, but agreement
has not yet been reached with the authorities on the final
remediation approach. Furthermore, the PRPs for these sites
have not reached an agreement on the allocation of costs between
the PRPs. The Company believes it either has no liability as a
responsible party or that adequate provisions have been recorded
for current estimates of the Company's liability and estimated
legal costs associated with the settlement of these claims. It
is reasonably possible that the Company's recorded estimate of
its obligation may change in the near term.
The Company has started a program to ensure year 2000
compliance (Y2K) issues. This program addresses software
applications and computer controlled manufacturing processes as
well as obtaining assurance that vendors supplying services and
materials will be Y2K compliant. Costs to administer this
program are estimated to be $250,000.
Subsequent Event
In January, 1998, the Company signed a non-binding letter of
agreement to acquire for cash 70 percent of Schade GmbH & Co.
KG, Plettenberg, Germany, a privately held long-time automotive
OEM supplier with which it has had a nine-year non-equity
technological alliance. Schade has sales and manufacturing
operations in Germany, Portugal, Spain, United Kingdom and the
Czech Republic. It has annual sales of more than $275 million in
encapsulated window modules, door frames, modular doors, outside
trim and injection molded plastic components.
Subject to completion of due diligence and approval of
Schade shareholders, the Company expects to sign a definitive
agreement in early March and close the transaction on July 1,
1998. The remaining 30 percent of Schade is owned by Hella KG
Hueck & Co., another international OEM supplier. The Company
will purchase all shares of Schade insiders and increase
shareholder equity.
Inflation
The impact of inflation on operating results for the years 1997,
1996 and 1995 was not significant. Raw material costs during
these periods have increased; however, use of LIFO inventory
methods by the Company has minimized any impact from inflation.
The majority of the Company's property, plant and equipment is
of recent purchase, and depreciation charges are based on
historical cost.
Cautionary Statements for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995
Certain statements in this Annual Report, in the Company's press
releases and in oral statements made by or with the approval of
an authorized executive officer of the Company constitute
"forward-looking statements" as that term is defined under the
Private Securities Litigation Reform Act of 1995. These may
include statements projecting, forecasting or estimating Company
performance and industry trends. The achievement of the
projections, forecasts or estimates is subject to certain risks
and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. The
applicable risks and uncertainties include general economic and
industry factors.
General risks that may impact the achievement of such
forecasts include: compliance with new laws and regulations,
significant raw material price fluctuations, and other business
factors. Specific risks to the Company include: risk of
recession in the economies in which its products are sold, the
concentration of a substantial percentage of the Company's sales
with a few major OEM customers, labor relations at the Company,
its customers and its suppliers; competition in pricing and new
product development from larger companies with substantial
resources.
Item 8. Financial Statements and Supplementary Data
Following are the consolidated financial statements of the
Company and its subsidiaries, the notes thereto, and the report
of independent accountants.
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Excel Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of income, of shareholders'
equity and of cash flows present fairly, in all material
respects, the financial position of Excel Industries, Inc. and
its subsidiaries at December 27, 1997 and December 28, 1996, and
the results of their operations and their cash flows for each of
the three fiscal years in the period ended December 27, 1997, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Indianapolis, IN
February 19, 1998
<PAGE>
<TABLE>
Consolidated Balance Sheet
(Amounts in thousands)
<CAPTION>
Dec. 27, Dec. 28,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 2,317 $ 6,580
Marketable securities 24,420 23,981
Accounts receivable-trade, less allowances
of $1,318 in 1997 and $2,443 in 1996 140,910 127,351
Customer tooling to be billed 22,356 17,278
Inventories 40,929 43,960
Prepaid expenses 14,929 19,800
Total current assets 245,861 238,950
Property, plant and equipment:
Land 3,227 3,561
Buildings and improvements 52,056 52,667
Machinery and equipment 225,046 194,270
Accumulated depreciation (119,361) (90,723)
160,968 159,775
Goodwill, net of accumulated amortization
of $5,387 in 1997 and $4,074 in 1996 35,960 31,814
Other assets 15,008 12,695
$ 457,797 $ 443,234
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 85,469 $ 68,673
Accrued liabilities:
Salaries and wages 9,249 10,100
Employee benefits 11,136 10,628
Other 20,785 22,847
Income taxes payable -- 3,008
Current maturities of long-term debt 2,672 9,554
Total current liabilities 129,311 124,810
Long-term debt 105,943 123,452
Long-term employee benefits 32,934 30,795
Other long-term liabilities 4,294 13,452
Commitments and contingent liabilities -- --
Shareholders' equity:
Preferred shares-no par value, authorized
1,000 shares; none issued -- --
Common shares-no par value, authorized
20,000 shares; issued and outstanding
12,414 IN 1997 and 10,718 in 1996 114,730 92,187
Retained earnings 70,585 58,653
Minimum pension liability adjustment -- (160)
Cumulative translation adjustment -- 45
Total shareholders' equity 185,315 150,725
$ 457,797 $ 443,234
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
Consolidated Statement of Income
(Amounts in thousands, except per share amounts)
<CAPTION>
Fiscal Year Ended
Dec. 27, Dec. 28, Dec. 30,
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 962,333 $ 887,741 $ 596,014
Cost of goods sold 846,990 783,375 540,716
Gross profit 115,343 104,366 55,298
Selling, administrative and
engineering expenses 79,267 65,652 32,973
Disposal of Canadian
Facility -- -- (1,582)
Operating income 36,076 38,714 23,907
Interest expense 10,984 9,784 3,322
Other income, net (1,930) (1,736) (3,805)
Income before income taxes 27,022 30,666 24,390
Provision for income taxes 9,458 11,550 8,125
Net income $ 17,564 $ 19,116 $ 16,265
Net income per share:
Basic $ 1.59 $ 1.79 $ 1.52
Diluted 1.48 1.62 1.41
Cash dividends per share $ .50 $ .455 $ .44
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
Consolidated Statement of Shareholders' Equity
(Amounts in thousands)
<CAPTION>
Common
Shares Common Retained
Outstanding Shares Earnings
<S> <C> <C> <C>
Balance at December 31, 1994 10,684 $ 94,831 $ 32,854
Net income 16,265
Dividends (4,707)
Share options exercised 7 57
Shares issued under employee
stock purchase plan 22 269
Minimum pension liability
adjustment
Treasury shares purchased (10)
Balance at December 30, 1995 10,703 95,157 44,412
Net income 19,116
Dividends (4,875)
Share options exercised 12 86
Shares issued under employee stock
purchase plan 15 192
Warrants issued 1,500
Minimum pension liability
adjustment
Cumulative translation adjustment
Treasury shares purchased (12)
Treasury shares canceled (4,748)
Balance at December 28, 1996 10,718 92,187 58,653
Net income 17,564
Dividends (5,632)
Share options exercised 9 116
Shares issued under employee
stock purchase plan 22 427
Conversion of 10% subordinated
notes 1,665 22,000
Minimum pension liability
adjustment
Cumulative translation
adjustment
Balance at December 27, 1997 12,414 $114,730 $70,585
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Minimum
Pension Cumulative
Liability Translation
Adjustment Adjustment
<S> <C> <C>
Balance at December 31, 1994 $ (587) $ --
Net income
Dividends
Share options exercised
Shares issued under employee stock
purchase plan
Minimum pension liability adjustment (72)
Treasury shares purchased
Balance at December 30, 1995 (659) --
Net income
Dividends
Share options exercised
Shares issued under employee stock
purchase plan
Warrants issued
Minimum pension liability adjustment 499
Cumulative translation adjustment 45
Treasury shares purchased
Treasury shares canceled
Balance at December 28, 1996 (160) 45
Net income
Dividends
Share options exercised
Shares issued under employee stock
purchase plan
Conversion of 10% subordinated notes
Minimum pension liability adjustment 160
Cumulative translation adjustment (45)
Balance at December 27, 1997 $ -- $ --
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
Treasury
Shares Total
<S> <C> <C>
Balance at December 31, 1994 $ (4,455) $ 122,643
Net income 16,265
Dividends (4,707)
Share options exercised 57
Shares issued under employee stock
purchase plan 269
Minimum pension liability adjustment (72)
Treasury shares purchased (138) (138)
Balance at December 30, 1995 (4,593) 134,317
Net income 19,116
Dividends (4,875)
Share options exercised 86
Shares issued under employee stock
purchase plan 192
Warrants issued 1,500
Minimum pension liability adjustment 499
Cumulative translation adjustment 45
Treasury shares purchased (155) (155)
Treasury shares canceled 4,748 --
Balance at December 28, 1996 -- 150,725
Net income 17,564
Dividends (5,632)
Share options exercised 116
Shares issued under employee stock
purchase plan 427
Conversion of 10% subordinated notes 22,000
Minimum pension liability adjustment 160
Cumulative translation adjustment (45)
Balance at December 27, 1997 $ -- $ 185,315
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows
(Amounts in thousands)
<CAPTION>
Fiscal Year Ended
Dec. 27, Dec. 28,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,564 $ 19,116
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 33,382 26,246
Income taxes deferred 3,093 (1,613)
Loss(gain) from disposal of
Facilities 1,242 --
Gain from life insurance -- --
Other 851 348
Changes in assets and liabilities,
excluding effect of acquisitions:
Accounts receivable and
prepaid expenses (12,396) 19,206
Inventories and customer
Tooling (3,180) 25,955
Accounts payable and
accrued liabilities (79) (19,409)
Total adjustments 22,913 50,733
Net cash provided by
operating activities 40,477 69,849
Cash flows from investing activities:
Purchase of property, plant
and equipment (39,287) (29,209)
Businesses acquired (2,415) (58,984)
Sale (purchase) of investments, net (2,471) 8,290
Proceeds from disposal of businesses 6,793 --
Proceeds from life insurance -- --
Other 199 929
Net cash used for
investing activities (37,181) (78,974)
Cash flows from financing activities:
Issuance of common shares 543 278
Payments of long-term debt (2,470) (79,934)
Dividends (5,632) (4,875)
Purchase of treasury shares -- (155)
Issuance of long-term debt -- 100,000
Net cash provided by
(used for) financing activities (7,559) 15,314
Net change in cash and
short-term investments (4,263) 6,189
Cash and short-term investments
at beginning of period 6,580 391
Cash and short-term investments
at end of period $ 2,317 $ 6,580
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 11,182 $ 9,288
Income taxes, net of refunds 8,895 10,524
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
Dec. 30,
1995
<S> <C>
Cash flows from operating activities:
Net income $ 16,265
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,720
Income taxes deferred (108)
Loss(gain) from disposal of
Facilities (1,582)
Gain from life insurance (1,468)
Other 334
Changes in assets and liabilities,
excluding effect of acquisitions:
Accounts receivable and
prepaid expenses (7,486)
Inventories and customer
Tooling (4,802)
Accounts payable and
accrued liabilities 7,301
Total adjustments 5,909
Net cash provided by
operating activities 22,174
Cash flows from investing activities:
Purchase of property, plant
and equipment (21,744)
Businesses acquired --
Sale (purchase) of investments, net (2,060)
Proceeds from disposal of businesses 6,306
Proceeds from life insurance 1,841
Other (31)
Net cash used for
investing activities (15,688)
Cash flows from financing activities:
Issuance of common shares 326
Payments of long-term debt (1,751)
Dividends (4,707)
Purchase of treasury shares (138)
Issuance of long-term debt --
Net cash provided by
(used for) financing activities (6,270)
Net change in cash and
short-term investments 216
Cash and short-term investments
at beginning of period 175
Cash and short-term investments
at end of period $ 391
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 3,358
Income taxes, net of refunds 10,380
In 1997, the Company converted $22 million in subordinated notes
into 1,665,000 common shares. In connection with the
restructuring reserve established for plant closures in 1997,
goodwill was increased by $5.4 million, which was net of income
taxes. In connection with the business acquired in 1996, the
Company had certain non-cash costs totaling $3 million,
including the issuance of warrants valued at $1.5 million.
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Prior to 1996, the Company operated in predominately one
industry segment in the United States: the design, engineering
and manufacture of certain components sold to manufacturers in
the ground transportation industry. With the acquisition of
Anderson in 1996, the Company expanded into a second segment:
the manufacture of appliances and equipment for the recreational
vehicle (RV) industry.
The light vehicle products segment consists of the
manufacturing of window assemblies, regulators, seating systems
and injection molded parts for light vehicles manufactured in
North America. The RV, mass transit and heavy truck segment
consists of RV appliances, jacks and couplers, bus windows and
doors and windows for heavy trucks.
2. Significant Accounting Principles
Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany transactions, profits and balances are eliminated.
Net income per share
In 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". All earnings
per share amounts reported herein have been restated to comply
with this Statement.
Basic net income per share is computed using the weighted
average number of shares outstanding during the period. Shares
used to compute basic net income per share were 11,079,000 for
1997, 10,709,000 for 1996 and 10,690,000 for 1995.
Diluted earnings per share assumes, when dilutive, the
exercise of common share options and warrants outstanding and
the conversion of the outstanding 10% convertible subordinated
notes which were converted into common shares in October, 1997.
Shares used to compute diluted earnings per share included the
number of shares used for basic net income per share plus
1,370,000 in 1997, 2,220,000 in 1996 and 2,270,000 in 1995 for
the conversion of the notes and 187,000 in 1997, 56,000 in 1996
and 22,000 in 1995 for the exercise of options and warrants.
Net income used to compute diluted earnings per share included
an add-back of $1,192,000 in 1997, $1,907,000 in 1996 and
$2,001,000 in 1995 for interest, net of taxes, on the notes.
Short-term investments and marketable securities
Short-term investments amounting to $2,000,000 at December 27,
1997 and $4,097,000 at December 28, 1996 consist of investments
generally held in money market funds.
Marketable securities represent investments with
maturities generally longer than 90 days. All securities mature
prior to December, 1998. Interest and dividends on marketable
securities are included in income as earned. Realized gains or
losses are determined on the specific identification method.
Marketable securities are carried at cost, which
approximates market value, and consist of the following:
<TABLE>
<CAPTION>
1997 1996
(000 Omitted)
<S> <C> <C>
Government securities $ 10,885 $ 2,984
Tax-free municipal
Securities 5,335 9,307
Municipal fund par value
preferred shares 2,200 9,650
Other tax free securities 6,000 2,040
$ 24,420 $23,981
</TABLE>
Other income includes interest income of $1,957,000 in
1997, $1,772,000 in 1996, and $2,113,000 in 1995.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for all
inventories at December 27, 1997 except for $6,658,000, which
are valued using the first-in, first-out (FIFO) method.
Customer tooling to be billed
Customer tooling to be billed represents costs incurred by the
Company on behalf of the customer that are recoverable during
the next twelve months.
Properties
Plant and equipment are carried at cost and include expenditures
for new facilities and those which substantially increase the
useful lives of existing plant and equipment. Expenditures for
repairs and maintenance are expensed as incurred.
Depreciation
The Company provides for depreciation of plant and equipment
using methods and rates designed to amortize the cost of such
equipment over its useful life. Depreciation is computed
principally on accelerated methods for new plant and equipment
and the straight-line method for used equipment. The estimated
useful lives range from 10 to 40 years for buildings and
improvements and 2 to 20 years for machinery and equipment.
Starting in 1998, it is the Company's intent to change the
method of depreciating new capital expenditures from accelerated
methods to the straight-line method.
Goodwill
The excess of purchase price over the fair value of net assets
of acquired businesses (goodwill) is amortized on a straight-
line basis over 15 to 40 years.
Fair value of financial instruments
The Company estimates the fair value of all financial
instruments where the face value differs from the fair value,
primarily long-term debt, based upon quoted amounts or the
current rates available for similar financial instruments. If
fair value accounting had been used at December 27, 1997, long-
term debt would exceed the reported level by approximately $2
million.
Income taxes
Deferred income taxes are provided using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes".
Foreign currency translation
For operations outside the United States that prepare financial
statements in currencies other than the United States dollar,
the balance sheet, income, expense and cash flow amounts are
translated in accordance with SFAS No. 52 "Foreign Currency
Translation".
Fiscal year
The Company's fiscal year consists of 52 or 53 weeks ending on
the Saturday nearest the calendar year end.
Use of estimates
The preparation of 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. Acquisitions and Disposals
On April 3, 1996, the Company completed the purchase of all of
the outstanding common shares of Anderson Industries, Inc.
(Anderson) for approximately $62,562,000 including five-year
warrants for 381,000 shares of Excel common stock exercisable at
$13.25 per share (valued at $1.5 million) and expenses of the
transaction.
The acquisition of Anderson, a holding company whose main
asset was Atwood Industries, Inc. (Atwood), was accounted for as
a purchase. Accordingly, the purchase price was allocated to
the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated
fair value of net assets acquired, $26,482,000, was accounted
for as goodwill and is being amortized over 35 years using the
straight-line method.
The accompanying consolidated statements of income include
the operating results of Anderson since April 3, 1996. Pro
forma unaudited consolidated operating results of the Company
and Anderson for the year ended December 28, 1996 and December
30, 1995, assuming the acquisition had been made as of the
beginning of 1996 and 1995, are summarized below (in thousands
except per share amounts):
<TABLE>
<CAPTION>
Year Ended
1996 1995
<S> <C> <C>
Net sales $985,555 $995,803
Net income 20,745 9,783
Net income per share, basic 1.94 0.92
Net income per share, diluted 1.74 0.91
</TABLE>
Pro forma net income for the year ended December 30, 1995,
includes a charge which reduced net income by $4,978,000 for a
warranty issue on a component part manufactured by Anderson that
was recalled by a major automotive customer.
The unaudited pro forma financial information presented is
not necessarily indicative either of the results of operations
that would have occurred had the transactions been completed on
the indicated dates or of future results of operations of the
combined companies.
In the first quarter of 1997 the Company recorded an $8.7
million pre-tax restructuring reserve for closing manufacturing
facilities in 1997 at Rockford, Illinois and Battle Creek,
Michigan which had been acquired as part of the acquisition of
Anderson. The reserve consists of personnel related costs
(mainly severance pay and fringe benefits) and costs related to
the disposals of buildings and equipment. The reserve increased
the associated goodwill by $5.4 million (which is net of income
taxes) and was not a charge to earnings. Total charges to the
reserve (personnel related costs and costs related to the
disposals of buildings and equipment) in 1997 were $5.4 million.
Any excess reserves remaining at the completion of those
restructuring activities will be recorded as a reduction in
goodwill.
In January, 1997, the Company completed the purchase of
the assets of The Compliance Group located in Greendale,
Wisconsin for approximately $2.4 million in cash. The excess of
the purchase price over the estimated fair value of assets
acquired ($2.5 million) has been accounted for as goodwill and
is being amortized over 15 years using the straight-line method.
In May, 1997, the Company completed the sale of the
automotive parking brake product line for $2.9 million, which
was acquired when the Company purchased Anderson. Sales were
approximately $6 million in 1997 and $12 million in 1996 or less
than 2% of total sales. At the date of the Anderson
acquisition, this asset was held for sale and the gain was
recorded as an adjustment to goodwill.
In September, 1997, the Company announced the closure of
the Italian manufacturing division of its Atwood Mobile Products
subsidiary. Closing expenses recorded in the third quarter were
approximately $1,242,000. Historically, this division has had
annual sales of approximately $2.5 million and losses in excess
of $1 million. Losses in 1997 were approximately $900,000.
In 1995, the Company recorded a gain on the disposition of
Excel Metalcraft, Ltd., (Metalcraft) located in Aurora, Ontario
in the amount of $1,582,000, which amounts to 9 cents per share
after income taxes.
4. Research, Engineering and Development
Research, engineering and development expenditures charged to
operations approximated $25,245,000 in 1997, $17,237,000 in
1996, and $12,897,000 in 1995. The increases in both 1997 and
1996 were attributed to the Anderson acquisition.
5. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
(000 Omitted)
<S> <C> <C>
Raw materials $ 23,591 $ 24,047
Work in process and
finished goods 18,674 20,770
LIFO reserve (1,336) (857)
$ 40,929 $ 43,960
</TABLE>
6. Pension and Other Employee Benefit Plans
Pension and profit sharing plans
The Company and its subsidiaries provide retirement benefits to
substantially all employees through various pension, savings and
profit sharing plans. Defined benefit plans provide pension
benefits that are based on the employee's final average salary
for salaried employees and stated amounts for each year of
credited service for hourly employees.
Components of net pension expense for qualified defined
benefit pension plans are as follows:
<TABLE>
<CAPTION>
Year Ended
1997 1996 1995
(000 Omitted)
<S> <C> <C> <C>
Service cost $ 2,687 $ 2,470 $ 1,642
Interest cost 3,207 2,711 1,585
Actual return on
Assets (2,770) (2,248) (3,001)
Net amortization and
Deferral 48 53 1,583
Net defined benefit
pension expense $ 3,172 $ 2,986 $ 1,809
</TABLE>
The increase in net defined benefit pension expense is due to
the inclusion of Atwood for the entire year in 1997 and nine
months in 1996.
The funded status of qualified defined benefit pension plans is
as follows:
<TABLE>
Assets exceed Accumulated benefits
accumulated benefits exceed assets
<CAPTION>
1997 1996 1997 1996
(000 Omitted)
<S> <C> <C> <C> <C>
Plan assets at fair value $28,000 $24,528 $12,117 $ 9,923
Projected benefit obligation 32,120 30,694 14,200 12,919
Funded status (4,120) (6,166) (2,083) (2,996)
Unrecognized costs 414 2,542 (471) (116)
Net accrued pension costs $(3,706) $(3,624) $(2,554) $(3,112)
Actuarial present value of:
Vested benefit obligations $21,770 $20,815 $13,230 $11,984
Accumulated benefit
Obligations $23,378 $22,284 $14,151 $12,797
</TABLE>
<TABLE>
Major assumptions for 1997 and 1996:
<S> <C>
Discount rate 7.5%
Rate of increase in compensation 5.0%
Expected rate of return on plan
assets 8.0%
</TABLE>
It is generally the Company's policy to fund the ERISA
minimum contribution requirement. Plan assets are invested
primarily in corporate equity securities and bonds and insurance
annuity contracts.
Contributions and costs for the Company's various other
benefit plans are generally determined based on the employee's
annual salary. The Company also provides supplemental
retirement benefits for certain executives. Total expense
relating to the Company's retirement plans, including the
defined pension benefit plans, aggregated $8,153,000 in 1997,
$7,577,000 in 1996, and $3,947,000 in 1995.
Supplemental and other postretirement benefits
In addition to providing pension benefits, the Company provides
certain health care benefits to substantially all active
employees and postretirement health care benefits to certain
management employees. In addition, certain hourly and salary
employees are eligible for postretirement medical coverage until
age 65. The Company is primarily self-insured for such
benefits.
The Company follows the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" and funds these benefits on a pay-as-you-go basis.
The components of net periodic postretirement benefit cost are
as follows:
<TABLE>
<CAPTION>
Year Ended
1997 1996 1995
(000 Omitted)
<S> <C> <C> <C>
Service cost, benefits
earned during the
year $1,060 $ 868 $ 656
Interest cost on
accumulated
benefit obligation 913 780 482
Amortization of
Deferrals (203) (200) (189)
Net periodic postretirement
benefit cost $1,770 $1,448 $ 949
</TABLE>
The increase in expense is primarily due to the inclusion of
Atwood for the entire year in 1997 and nine months in 1996.
Summary information on the Company's plans is as follows:
<TABLE>
<CAPTION>
1997 1996
(000 Omitted)
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ 3,471 $ 3,018
Retirement-eligible actives 1,759 1,850
Other active participants 6,055 7,788
Accumulated postretirement benefit
obligation (APBO) 11,285 12,656
Unrecognized prior service costs 2,556 808
Unrecognized net actuarial gain 4,524 3,973
Accrued postretirement benefit
Costs $ 18,365 $17,437
</TABLE>
The decrease in APBO is due to an employee cost sharing
plan amendment, and the deferral of the savings results in an
increase in the unrecognized prior service costs.
Long-term accrued postretirement benefit costs of
$17,465,000 and $16,148,000 are included in long-term employee
benefits at December 27, 1997 and December 28, 1996,
respectively.
The discount rate used in determining the APBO was 7.5% in
1997 and 7.75% in 1996. The 1997 assumed health care cost trend
rate used in measuring the accumulated postretirement benefit
obligation was 8.25% in 1997 and 8.75% in 1996, declining by .5%
per year to a rate of 5.75%. An increase of 1% in the health
care cost trend rate would increase the accrued postretirement
benefit obligation at December 27, 1997 by $1,589,000 and the
1997 annual expense by $583,000.
7. Long-term Debt
Following is a summary of long-term debt of the Company:
<TABLE>
<CAPTION>
1997 1996
(000 Omitted)
<S> <C> <C>
7.78% Senior notes $ 100,000 $ 100,000
10% Convertible subordinated notes -- 22,000
Other 8,615 11,006
108,615 133,006
Current maturities (2,672) (9,554)
$ 105,943 $ 123,452
</TABLE>
The Senior notes are due April 30, 2011. Interest only is
payable in quarterly installments until 2000 at which time
annual payments will commence ranging from $3.9 million to $12.2
million.
The convertible subordinated notes were converted into
common shares of the Company in October, 1997.
The debt agreements contain certain restrictive covenants
which require, among other things, that the Company maintain
certain financial ratios at specified levels, such as a current
ratio of 1.5 to 1, restrict the amount of additional borrowings
and limit the amount of dividends that can be paid.
The other debt consists of Industrial Revenue Bonds,
capitalized leases, mortgages and equipment loans with interest
rates ranging from those tied to short-term Treasury rates to
10.1%. Certain plant and equipment purchased with the proceeds
of the debt collateralize these obligations.
The Company had available unused unsecured lines of credit
of approximately $56,000,000 at December 27, 1997 under terms of
an agreement executed in April, 1996. Funds are available under
this agreement through April, 2000 at an interest rate equal to
the London Interbank rate plus 75 basis points.
Long-term debt maturities are $2,672,000 in 1998,
$2,000,000 in 1999, $6,122,000 in 2000, $5,108,000 in 2001,
$5,120,000 in 2002 and $87,593,000 thereafter.
8. Leases
The Company leases certain of its manufacturing facilities,
sales offices, transportation and other equipment. Total rental
expense was approximately $5,037,000 in 1997, $4,471,000 in
1996, and $2,174,000 in 1995. Future minimum lease payments
under noncancellable operating leases are $3,305,000 in 1998,
$2,795,000 in 1999, $1,210,000 in 2000, $937,000 in 2001, and
$756,000 in 2002.
9. Income Taxes
Pre-tax income reported by U.S. and foreign subsidiaries was as
follows:
<TABLE>
<CAPTION>
Year Ended
1997 1996 1995
(000 Omitted)
<S> <C> <C> <C>
United States $ 29,070 $ 31,531 $ 24,390
Foreign (2,048) (865) --
$ 27,022 $ 30,666 $ 24,390
</TABLE>
The provision (benefit) for income taxes is summarized below:
<TABLE>
<CAPTION>
Year Ended
1997 1996 1995
(000 Omitted)
Current:
<S> <C> <C> <C>
U.S. federal $ 5,187 $ 11,070 $ 7,213
State 1,178 2,093 1,020
6,365 13,163 8,233
Deferred:
U.S. federal 3,022 (1,720) (142)
State 71 107 34
3,093 (1,613) (108)
$ 9,458 $ 11,550 $ 8,125
</TABLE>
Deferred income taxes are provided for the temporary
differences between the financial reporting basis and tax basis
of the Company's assets and liabilities. Current deferred
income tax assets of $11,076,000 and $14,810,000 are classified
as prepaid expenses at December 27, 1997 and December 28, 1996,
respectively. Long-term deferred income tax liabilities of
$2,051,000 and $5,188,000 are classified as other long-term
liabilities at December 27, 1997 and December 28, 1996,
respectively.
Deferred income taxes are comprised of the following at
December 27, 1997 and December 28, 1996:
<TABLE>
<CAPTION>
1997 1996
(000 Omitted)
<S> <C> <C>
Gross deferred tax liabilities
Property, plant and equipment $ 16,457 $ 19,173
Other 607 653
17,064 19,826
Gross deferred tax assets
Pension and postretirement
benefit obligations 14,036 13,202
Other accrued liabilities 11,898 15,348
Inventories 155 519
Tax credit and net operating
loss carryforwards 1,355 2,865
27,444 31,934
Valuation allowance (1,355) (2,486)
Net deferred tax assets $ 9,025 $ 9,622
</TABLE>
At December 27, 1997 and December 28, 1996 the Company
maintained a valuation allowance for foreign tax credit and
foreign net operating loss carryforwards, which expire in 1998-
2002. The decrease in the valuation reserve in 1997 is
primarily a result of the disposition of the Italian operation.
Based upon past operating results, the Company does not
currently estimate that it is more likely than not that these
carryforwards can be utilized before they expire.
The provision for income taxes computed by applying the
Federal statutory rate to income before income taxes is
reconciled to the recorded provision as follows:
<TABLE>
<CAPTION>
Year Ended
1997 1996 1995
(000 Omitted)
<S> <C> <C> <C>
Tax at United States
statutory rate $9,458 $ 10,733 $ 8,537
State income taxes,
net of federal benefit 812 1,430 685
Research and
development tax credits (187) (80) (150)
Foreign Sales Corporation (682) (494) (28)
Non-taxable interest
Income (382) (340) (455)
Gain on executive life
Insurance -- -- (514)
Amortization of goodwill 479 346 119
Other (40) (45) (69)
$9,458 $ 11,550 $ 8,125
</TABLE>
10. Common Shares
In 1997, the Company reserved 500,000 common shares for the
Excel Industries, Inc. 1997 Long-Term Incentive Plan (LTIP).
Under the LTIP, performance shares awarded to key executives of
the Company are earned based on the attainment of one or more
pre-established performance goals over a specified performance
period. Through December 27, 1997, 67,500 performance shares had
been awarded.
The Company has 486,650 common shares reserved for
issuance to officers, other key employees and non-employee
directors for the 1994 Stock Compensation Plan (the Plan). The
Plan provides that options may be granted at not less than fair
market value and are exercisable for ten years from the date of
grant. Generally, the options become exercisable at the rate of
25% per year commencing one year from the date of grant.
The following table sets forth stock option activity.
<TABLE>
<CAPTION>
Year Ended
1997 1996
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Stock options
outstanding at
beginning of year 250,900 $12.45 263,750 $12.23
Options granted 127,000 19.19 15,000 12.25
Options exercised (9,400) 12.38 (12,200) 7.54
Options canceled (16,250) 15.73 (15,650) 12.38
Stock options outstanding
at end of year 352,250 $14.73 250,900 $12.45
Options exerciseable
at year end 110,000 $12.51 57,300 $12.56
</TABLE>
<TABLE>
<CAPTION>
Year Ended
1995
Weighted
Average
Exercise
Options Price
<S> <C> <C>
Stock options
outstanding at
beginning of year 291,750 $17.48
Options granted 271,500 12.38
Options exercised (7,500) 7.61
Options canceled (292,000) 17.73
Stock options outstanding
at end of year 263,750 $12.23
Options exerciseable
at year end 8,250 $ 5.23
</TABLE>
<TABLE>
<CAPTION>
Exercise Price Range
$12.25 - $12.38 $16.13 - $19.19 Total
<S> <C> <C> <C>
Options outstanding 229,250 123,000 352,250
Weighted average
exercise price $12.37 $19.14 $14.73
Remaining contractual
life 7.4 years 9.2 years 8.0 years
Options exercisable 107,000 3,000 110,000
Weighted average
exercise price $12.37 $17.63 $12.51
</TABLE>
The Company has adopted the disclosure only provisions of
SFAS No. 123, "Accounting for Stock Based Compensation."
Accordingly, the element of compensation cost applicable to
granting of stock options has not been recognized for financial
statement purposes. Had compensation cost for the options
granted been recognized for financial statement purposes using
the Black-Scholes option pricing model, the Company's net
earnings and basic earnings per share would have been reduced to
the pro-forma amounts indicated below (amounts in thousands
except per share amounts):
<TABLE>
<CAPTION>
Year Ended
1997 1996
Reported Pro-Forma Reported Pro-Forma
<S> <C> <C> <C> <C>
Net earnings $17,564 $17,191 $ 19,116 $18,882
Per share 1.59 1.55 1.79 1.77
</TABLE>
<TABLE>
<CAPTION>
Year Ended
1995
Reported Pro-Forma
<S> <C> <C>
Net earnings $ 16,265 $16,031
Per share 1.52 1.50
</TABLE>
The fair value of the option grant is estimated on the
date of grant with the following assumptions for 1997: dividend
yield of 2.8%; expected volatility of 31%; risk-free interest
rate of 5.75%; and expected life of 5 years. Assumptions for
1996 and 1995 were: dividend yield of 3.2%; expected volatility
of 33%; risk-free interest rate of 6.5%; and expected life of 5
years.
The Company has an employee stock purchase plan and has
reserved 280,004 common shares for this purpose. The plan
allows eligible employees to authorize payroll withholdings
which are used to purchase common shares from the Company at
ninety percent (90%) of the closing price of the common shares
on the date of purchase. Through December 27, 1997, 169,996
shares had been issued under the plan.
The Company has outstanding warrants for the purchase of
381,000 common shares at a price of $13.25. These warrants were
issued in connection with the acquisition of Anderson Industries
and if not exercised, expire April 2001.
On December 21, 1995, the Company announced that its Board
of Directors adopted a shareholder rights plan. The Company
adopted the plan to protect shareholders against unsolicited
attempts to acquire control of the Company that do not offer
what the Company believes to be an adequate price to all
shareholders. The rights were issued to shareholders of record
on January 22, 1996 and will expire on January 22, 2006.
The plan provides for the issuance of one right for each
outstanding share of the Company's Common Stock. The rights
will become exercisable only if a person or group acquires or
announces a tender offer to acquire 20% or more of the Company's
outstanding voting stock. Each right entitles the holder to buy
one one-hundredth share of a newly authorized series of
preferred stock from the Company. Also, after such acquisition
all rights holders except the acquirer will be entitled to
purchase common shares at one-half of the then current market
price of the common shares. Any activity regarding this plan
would have a dilutive effect on earnings per share calculations.
11. Segment Information and Major Customers
The following segment information separating light vehicle
products and products for the recreational vehicle, mass transit
and heavy truck (RV/MT/HT) industry is for the years ended
December 27, 1997 and December 28, 1996 (000 omitted). Prior to
1996, the Company manufactured products predominately for the
light vehicle industry.
<TABLE>
<CAPTION>
Light Vehicle RV/MT/HT
Products Products Corporate Total
<S> <C> <C> <C> <C>
December 27, 1997
Sales $ 750,154 $212,179 $ -- $962,333
Operating income
(expense) 27,943 15,995 (7,862) 36,076
Assets 316,547 102,793 38,457 457,797
Capital expenditures 32,904 5,944 439 39,287
Depreciation and
amortization expense 24,264 7,565 1,553 33,382
December 28, 1996
Sales $ 719,435 $168,306 $ -- $887,741
Operating income
(expense) 33,369 14,251 (8,906) 38,714
Assets 297,042 106,915 39,277 443,234
Capital expenditures 23,582 4,002 1,625 29,209
Depreciation and
amortization expense 19,348 5,226 1,672 26,246
</TABLE>
Sales to three major customers, Ford Motor Company,
Chrysler Corporation, and General Motors Corporation, were
approximately 41%, 11% and 7%, respectively, of the Company's
net sales in 1997 as compared to 47%, 12% and 6% in 1996 and
69%, 11% and 6% in 1995.
Accounts receivable from Ford Motor Company, Chrysler
Corporation, and General Motors Corporation approximated 60% of
trade accounts receivable at December 27, 1997 and December 28,
1996. Sales to customers outside of the United States,
primarily to Canada, were approximately $173 million in 1997,
$146 million in 1996 and $86 million in 1995.
12. Quarterly Results of Operations (Unaudited)
The following table sets forth in summary form the quarterly
results of operations for the fiscal years ended December 27,
1997 and December 28, 1996 (amounts in thousands except per
share amounts):
<TABLE>
<CAPTION>
1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $251,216 $264,474 $213,548 $233,095
Gross profit 30,998 37,099 21,659 25,587
Net income 6,302 9,067 297 1,898
Net income per share
Basic $ .59 $ .85 $ .03 $ .16
Diluted .53 .75 .03 .16
1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $150,607 $274,148 $227,635 $235,351
Gross profit 15,903 35,987 23,932 28,544
Net income 4,883 8,053 2,223 3,957
Net income per share
Basic $ .46 $ .75 $ .21 $ .37
Diluted .41 .66 .21 .34
</TABLE>
13. Contingencies
A chemical cleaning compound, trichloroethylene (TCE), has been
found in the soil and groundwater on the Company's property in
Elkhart, Indiana, and in 1981, TCE was found in a well field of
the City of Elkhart in close proximity to the Company's
facility. The Company has been named as one of nine potentially
responsible parties (PRPs) in the contamination of this site.
In early 1992, the United States Environmental Protection
Agency (EPA) issued a Unilateral Order under Section 106 of the
Comprehensive Environmental Response, Compensation and Liability
Act which required the Company and other PRPs to undertake
remedial work. The Company and the other PRPs have reached an
agreement regarding the funding of groundwater monitoring and
the operation of the air-strippers as required by the Unilateral
Order. The Company was required to install and operate a soil
vapor extraction system to remove TCE from the Company's
property. A lawsuit seeks recovery of the costs of enforcement,
prejudgment interest and an amount in excess of $6.8 million,
which represents costs incurred to date by the EPA and the
Indiana Department of Environmental Management (IDEM), and a
declaration that eight defendant PRPs are liable for any future
costs incurred by the EPA and IDEM in connection with the site.
On August 21, 1996 the United States Department of Justice
lodged with the United States District Court for the Northern
District of Indiana a proposed partial consent decree which
specifies payment of Federal Past Response Costs from certain
PRPs which for Excel amounted to approximately $3.2 million
which together with amounts due IDEM would bring Excel's total
obligation to approximately $3.4 million, which has been accrued
by the Company. Comments objecting to the consent decree were
lodged with the United States Department of Justice (USDOJ) and
the court. In responding to those objections, USDOJ restated
its support for the consent decree to the court on May 23, 1997.
The consent decree has not yet been accepted by the court.
The Company does not believe the annual cost to the
Company of monitoring groundwater and operating the soil vapor
extraction system and the air-strippers will be material. Each
of the PRPs, including the Company, is jointly and severally
liable for the entire amount of the EPA Costs. The Company
believes that adequate provisions have been recorded for its
costs and its anticipated share of EPA Costs and that its cash
on hand, unused lines of credit or cash from operations are
sufficient to fund any required expenditures.
The Company has been named a PRP for costs at seven other
disposal sites. The remedial investigations and feasibility
studies have been completed, and the results of those studies
have been provided to the appropriate agencies. The studies
indicated a range of viable remedial approaches, but agreement
has not yet been reached with the authorities on the final
remediation approach. Furthermore, the PRPs for these sites
have not reached an agreement on the allocation of costs between
the PRPs. The Company believes it either has no liability as a
responsible party or that adequate provisions have been recorded
for current estimates of the Company's liability and estimated
legal costs associated with the settlement of these claims. It
is reasonably possible that the Company's recorded estimate of
its obligation may change in the near term.
There are claims and pending legal proceedings against the
Company and its subsidiaries with respect to taxes, workers'
compensation, warranties and other matters arising out of the
ordinary conduct of the business. The ultimate result of these
claims and proceedings at December 27, 1997 is not determinable,
but, in the opinion of management, adequate provision for
anticipated costs has been made or insurance coverage exists to
cover such costs.
14. Subsequent Event
In January, 1998, the Company signed a non-binding letter of
agreement to acquire for cash 70 percent of Schade GmbH & Co.
KG, Plettenberg, Germany, a privately held long-time automotive
OEM supplier with which it has had a nine-year non-equity
technological alliance. Schade has sales and manufacturing
operations in Germany, Portugal, Spain, United Kingdom and the
Czech Republic. It has annual sales of more than $275 million in
encapsulated window modules, door frames, modular doors, outside
trim and injection molded plastic components.
Subject to completion of due diligence and approval of
Schade shareholders, the Company expects to sign a definitive
agreement in early March and close the transaction on July 1,
1998. The remaining 30 percent of Schade is owned by Hella KG
Hueck & Co., another international OEM supplier. The Company
will purchase all shares of Schade insiders and increase
shareholder equity.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the caption "ELECTION OF
DIRECTORS" in the Company's proxy statement for the 1998 annual
meeting of shareholders (the "Proxy Statement") is incorporated
herein by reference. The Proxy Statement has previously been
filed with the Securities and Exchange Commission.
Robert A. Pickering filed his Form 5 due February 15, 1998
on March 18, 1998 reflecting his 1997 purchase of 161 shares in
the Company's Stock Purchase Plan.
Item 11. Executive Compensation
The information set forth under the captions "Compensation of
Directors," "Compensation of Executive Officers," "Summary
Compensation Table," "Options," "Pension Plans," "Deferred
Compensation Plans" and "Executive Separation Agreements" in the
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the captions "Outstanding
Shares," "Principal Shareholders," and "Security Ownership of
Management" in the Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Board Meetings and
Committees" in the Proxy Statement is incorporated herein by
reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Company
and its subsidiaries are included in Item 8 of this report.
Report of Independent Accountants
Consolidated Balance Sheet - December 27, 1997 and December
28, 1996
Consolidated Statement of Income - Fiscal years ended
December 27, 1997, December 28, 1996 and December 30, 1995
Consolidated Statement of Shareholders' Equity - Fiscal
years ended December 27, 1997, December 28, 1996 and
December 30, 1995
Consolidated Statement of Cash Flows - Fiscal years ended
December 27,1997, December 28, 1996 and December 30, 1995
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedule
The following financial statement schedule is included with this
report:
Report of Independent Accountants on Financial Statement
Schedule
II - Valuation and Qualifying Accounts and Reserves
All other schedule are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(a) (3) Exhibits
The list of exhibits contained in the Exhibit Index immediately
following the signature page of this Form 10-K is incorporated
herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 27, 1997.
<PAGE>
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.
<TABLE>
EXCEL INDUSTRIES, INC.
<S> <C>
March 20, 1998 s/ James O. Futterknecht
James O. Futterknecht, Chairman of
the Board, President and Chief
Executive 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.
<S> <C>
March 20, 1998 s/ James O. Futterknecht
James O. Futterknecht, Chairman of
the Board, President and Chief
Executive Officer (Principal
Executive Officer)
March 20, 1998 s/ Joseph A. Robinson
Joseph A. Robinson, Senior Vice
President, Secretary-Treasurer and
Chief Financial Officer (Principal
Financial Officer)
March 20, 1998 s/ Ike K. Eikelberner
Ike K. Eikelberner, Vice President and
Corporate Controller (Principal
Accounting Officer)
March 20, 1998 s/ John G. Keane
John G. Keane, Director
March 20, 1998 s/ Richard A. Place
Richard A. Place, Director
March 20, 1998 s/ James K. Sommer
James K. Sommer, Director
March 20, 1998 s/ Ralph R. Whitney, Jr.
Ralph R. Whitney, Jr., Director
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Excel Industries, Inc.
Our audits of the consolidated financial statements referred to
in our report dated February 19, 1998, appearing in the 1997
Annual Report to Shareholders of Excel Industries, Inc. also
included an audit of the Financial Statement Schedule listed in
Item 14(a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
February 19, 1998
<PAGE>
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
<CAPTION>
Balance Additions
at beginning charged to
Classification of period Acquisition expense
Year ended December 30, 1995:
<S> <C> <C> <C>
Allowance for uncollectible
accounts receivable $ 868,000 $ -- $ 8,000
Deferred tax valuation
Allowance $ -- $ -- $ 375,000
Year ended December 28, 1996:
Allowance for uncollectible
accounts receivable $ 725,000 $ 513,000 $1,486,000
Deferred tax valuation
Allowance $ 375,000 $1,916,000 $ 352,000
Year ended December 27, 1997:
Allowance for uncollectible
accounts receivable $2,443,000 $ -- $ 165,000
Deferred tax valuation
Allowance $2,486,000 $ -- $ 577,000
</TABLE>
<TABLE>
<CAPTION>
Balance
at end of
Deductions period
Year ended December 30, 1995:
<S> <C> <C>
Allowance for uncollectible
accounts receivable $ (151,000)(1) $ 725,000
Deferred tax valuation allowance $ -- $ 375,000
Year ended December 28, 1996:
Allowance for uncollectible
accounts receivable $ (281,000)(1) $ 2,443,000
Deferred tax valuation allowance $ (157,000)(2) $ 2,486,000
Year ended December 27, 1997:
Allowance for uncollectible
accounts receivable $ (1,290,000)(1) $ 1,318,000
Deferred tax valuation allowance $ (1,708,000)(2) $ 1,355,000
(1) Primarily reflects write-offs of uncollectible accounts, net of
recoveries of amounts previously written off.
(2) Represents foreign net operating loss carryforwards utilized and
adjustments to reflect final tax return amounts.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page No.
Exhibit In Manually
Number Description of Exhibit Signed Copy
<S> <C>
(2.1) Stock purchase agreement dated March 4,
1996 among Excel Industries, Inc. and
Anderson Industries, Inc. and the
stockholders of Anderson Industries, Inc.
was filed as Exhibit 2 to the Company's
Form 8-K filed April 3, 1996 and is
incorporated herein by reference
(3.1) Articles of Incorporation of the Company
as amended effective January 5, 1996 were
filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K filed March 29,
1996 and is incorporated herein by
reference
(3.2) The Code of By-Laws of the Company as
amended effective December 21, 1995 was
filed as Exhibit 3.4 to the Company's
Annual Report on Form 10-K filed March 29,
1996 and is incorporated herein by
reference.
(4.1) A specimen of the certificate representing
the Common Stock of the Company was filed
as Exhibit 4.1 to the Company's Amendment
No. 1 to the Registration Statement on
Form S-1 filed on April 3, 1984 (Reg. No.
2-89521) and is incorporated herein by
reference
(4.2) Article VI, Section 2-5, Article VII
and Article XII, Section 1 of the Articles
of Incorporation of the Company are
included as part of Exhibit 3.1 above
(4.3) Articles X, XI, XV, XVI, XXIV of the Code
of By-Laws of the Company are included as
part of Exhibit 3.2 above
(4.4) Rights Agreement between the Company and
Chemical Mellon Shareholder Services
L.L.C., as Rights Agent, was filed as
Exhibit 4 to the Company's Current Report
on Form 8-K filed January 8, 1996 and is
incorporated herein by reference
(4.5) Warrant Grant and Registration Rights
Agreement dated April 3, 1996 among Excel
Industries, Inc. and certain stockholders
of Anderson Industries, Inc. was filed as
Exhibit 4.1 to the Company's Form 8-K
filed April 3, 1996 and is incorporated
herein by reference
(4.6) Amended and Restated Credit Agreement
dated April 29, 1996 among Excel
Industries, Inc., certain banks, Society
National Bank as agent and Harris Trust
and Savings Bank as co-agent was filed as
Exhibit 4.2 to the Company's Form 8K/A
Amendment No. 1 dated May 13, 1996 and is
incorporated herein by reference
(4.7) Form of Note Purchase Agreement dated May
3, 1995 between Excel Industries, Inc. and
each of several institutional investors
was filed as Exhibit 4.3 to the Company's
Form 8K/A Amendment No. 1 dated May 13,
1996 and is incorporated herein by
reference
(9) Not Applicable
(10.1) Purchase and Supply Contract between the
Company and Ford Motor Company dated
October 7, 1986, was filed as part of
Exhibit (e) (2) of the Company's Schedule
13E-4 filed on August 27, 1986, and is
incorporated herein by reference
(10.2) Lease Agreement between Modular Concepts,
Inc. and Fulton Industrial Development
Authority was filed as Exhibit 10.12 to
the Registration Statement on Form S-1
filed on February 27, 1987 (Reg. No. 33-
12282) and is incorporated herein by
reference
(10.3)*The Excel Industries, Inc. Stock Purchase
Plan and Trust was filed as Exhibit 4.4 to
Amendment No. 1 to the Company's
Registration Statement on Form S-8 filed
on June 9, 1987 (Reg. No. 33-14508) and is
incorporated herein by reference
(10.4) Lease Agreement dated May 4, 1988 between
the Company and Willis Day Properties,
Inc. (for the Toledo, Ohio facility) was
filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K filed March 20,
1989, and is incorporated herein by
reference
(10.5)*The 1989 Deferred Compensation Plan of the
Company as amended effective October 1,
1991 was filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K filed
March 26, 1992 and is incorporated herein
by reference
(10.6) Lease Purchase Contract dated July 1, 1979
between The Industrial Development Board
for the City of Pikeville (the "Pikeville
Board") and Ferro Manufacturing
Corporation ("Ferro") was filed as Exhibit
10.20 to the Company's Annual Report on
Form 10-K filed March 27, 1991, and is
incorporated herein by reference
(10.7) First Amendment to Lease Purchase
Contract, dated January 1, 1983, between
the Pikeville Board and Ferro was filed as
Exhibit 10.21 to the Company's Annual
Report on Form 10-K filed March 27, 1991,
and is incorporated herein by reference
(10.8)*Excel Industries, Inc. and Subsidiaries
Incentive Compensation Plan was filed on
Exhibit 10.14 to the Company's Annual
Report on Form 10-K filed March 26, 1993,
and is incorporated herein by reference
(10.9) Lease Extension Agreement dated September
17, 1992 between the Company and Willis
Day Properties, Inc. (for the Toledo
facility) was filed on Exhibit 10.15 to
the Company's Annual Report on Form 10-K
filed March 26, 1993, and is incorporated
herein by reference
(10.10)Purchase Agreement between the Company and
Ford Motor Company dated January 31, 1994
was filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K filed
March 29, 1994 and is incorporated herein
by reference
(10.11)*Form of Executive Separation Agreements
between the Company and the following
persons: James O. Futterknecht, Jr.,
Joseph A. Robinson, Louis R. Csokasy,
James E. Crawford, Terrance L. Lindberg,
Michael C. Paquette and James M.
Krzyzewski was filed as exhibit 10.13 to
the Company's Annual Report on Form 10-K
filed March 29, 1996 and is incorporated
herein by reference
(10.12)*Form of Excel Industries, Inc. 1994 Stock
Compensation Plan was filed as Exhibit 4
to the Company's registration statement
on Form S-8 (Reg. No. 33-53543) and is
incorporated herein by reference.
(10.13)*Form of Excel Industries, Inc. 1997 Long-
Term Incentive Plan was filed as Exhibit
4 to the Company's registration statement
on Form S-8 (Reg. No. 333-26909) and is
incorporated herein by reference
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(16) Not Applicable
(18) Not Applicable
(21) List of the Company's subsidiaries.
(22) Not Applicable
(23) Consent of Independent Accountants.
(24) Not Applicable
(27) Financial Data Schedule.
(28) Not Applicable
*Management contract or compensation plan or
arrangement.
</TABLE>
EXHIBIT 21
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
<S> <C>
Excel Corporation Indiana
Excel Industries of Michigan, Inc. Michigan
Excel Global, Inc. Barbados
Excel of Tennessee L.P. Tennessee
X.E. Co Michigan
Anderson Industries, Inc. Illinois
Atwood Industries, Inc. Illinois
Atwood Mobile Products, SRL Italy
Autopartes Excel De Mexico Mexico
Atwood Automotive Michigan
Hydro Flame Corporation Utah
Mark I Molded Plastics, Inc. Michigan
Mark I Molded Plastics of Tennessee, Inc. Tennessee
</TABLE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-14508, 33-
53543 and 333-26909) of Excel Industries, Inc. of our
report dated February 19, 1998 appearing on page 16 of this
Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement
Schedule, which appears on page 39 of this Form 10-K.
Price Waterhouse LLP
Indianapolis, Indiana
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 2,317
<SECURITIES> 24,420
<RECEIVABLES> 142,228
<ALLOWANCES> 1,318
<INVENTORY> 40,929
<CURRENT-ASSETS> 245,861
<PP&E> 280,329
<DEPRECIATION> 119,361
<TOTAL-ASSETS> 457,797
<CURRENT-LIABILITIES> 129,311
<BONDS> 0
0
0
<COMMON> 114,730
<OTHER-SE> 70,585
<TOTAL-LIABILITY-AND-EQUITY> 457,797
<SALES> 962,333
<TOTAL-REVENUES> 962,333
<CGS> 846,990
<TOTAL-COSTS> 926,257
<OTHER-EXPENSES> (1,930)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,984
<INCOME-PRETAX> 27,022
<INCOME-TAX> 9,458
<INCOME-CONTINUING> 17,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,564
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.48
</TABLE>
