FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
____________________________
For the Quarterly Period Ended September 26, 1998
Commission File No. 1-8684
Excel Industries, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1551685
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
1120 North Main Street, Elkhart, Indiana 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)264-2131
Indicate by "X" whether the registrant (a) 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 prior that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At October 20, 1998, there were outstanding 12,204,444 common
shares, no par value.
<PAGE>
<TABLE>
<CAPTION>
EXCEL INDUSTRIES, INC.
Index
Page No.
PART I Financial Information
<S> <C>
Consolidated Balance Sheet -
September 26, 1998 and December 27, 1997 1
Consolidated Statement of Income -
Quarter Ended September 26, 1998 and
September 27, 1997, Nine Months Ended
September 26, 1998 and September 27, 1997 2
Consolidated Statement of Shareholders'
Equity -
Nine Months Ended September 26, 1998 and
September 27, 1997 3
Consolidated Statement of Cash Flows -
Nine Months Ended September 26, 1998 and
September 27, 1997 4
Notes to Consolidated Financial Statements 5-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-15
PART II Other Information 16
Signatures 17
Financial Data Schedules Exhibit 27
</TABLE>
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(in thousands)
<CAPTION>
September 26, December 27,
1998 1997
ASSETS
<S> <C> <C>
Current assets
Cash and short-term investments $ 15,780 $ 2,317
Marketable securities -- 24,420
Accounts receivable 196,623 140,910
Customer tooling to be billed 33,354 22,356
Inventories 61,635 40,929
Prepaid expenses 14,698 14,929
Total current assets 322,090 245,861
Property, plant and equipment,
less accumulated depreciation of
(1998 - $142,527; 1997 - $119,361) 231,346 160,968
Goodwill 37,710 35,960
Other assets 15,689 15,008
$ 606,835 $457,797
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 15,000 $ --
Accounts payable 119,654 85,469
Accrued liabilities 61,470 41,170
Current portion of debt 12,536 2,672
Total current liabilities 208,660 129,311
Long-term debt 153,673 105,943
Other long-term liabilities 45,843 37,228
Minority interest 6,306 --
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
in 1998,12,450, in 1997, 12,414 115,331 114,730
Retained earnings 78,667 70,585
Cumulative translation adjustment 733 --
Treasury shares at cost, 182 in 1998 (2,378) --
Total shareholders' equity 192,353 185,315
$606,835 $457,797
NOTE: The balance sheet at December 27, 1997 has been derived
from the audited financial statements at that date.
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(thousands, except per share amounts)
<CAPTION>
Quarter Ended
September 26, September 27,
1998 1997
<S> <C> <C>
Net sales $280,231 $213,548
Cost of goods sold 259,583 191,889
Gross profit 20,648 21,659
Selling, administrative and
engineering expenses 20,023 18,968
Operating income 625 2,691
Interest expense (3,798) (2,805)
Other income, net 417 572
Income (loss) before income taxes (2,756) 458
Provision (credit) for taxes on
income (4,432) 161
Minority interest 87 --
Net income $ 1,589 $ 297
Net income per share:
Basic $ .13 $ .03
Diluted $ .13 $ .03
Cash dividends per share $ .125 $ .125
<CAPTION>
Nine Months Ended
September 26, September 27,
1998 1997
<S> <C> <C>
Net sales $758,462 $729,238
Cost of goods sold 681,584 639,482
Gross profit 76,878 89,756
Selling, administrative and
engineering expenses 56,157 58,585
Operating income 20,721 31,171
Interest expense (8,127) (8,476)
Other income, net 1,521 1,407
Income before income taxes 14,115 24,102
Provision for taxes on income 1,304 8,436
Minority interest 87 --
Net income $ 12,724 $ 15,666
Net income per share:
Basic $ 1.02 $ 1.46
Diluted $ 1.01 $ 1.33
Cash dividends per share $ .375 $ .375
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998
AND SEPTEMBER 27, 1997
(in thousands)
<CAPTION>
MIN
PENS
COMMON RETAINED LIAB
SHARES EARNINGS ADJ.
<S> <C> <C> <C>
Balance at
December 27, 1997 $114,730 $ 70,585 $ --
Net income 12,724
Dividends (4,642)
Share options exercised 125
Shares issued under employee
stock purchase plan 476
Cumulative translation
adjustment
Purchase treasury shares
Balance at
September 26, 1998 $115,331 $ 78,667 $ --
Balance at
December 28, 1996 $ 92,187 $ 58,653 $ (160)
Net income 15,666
Dividends (4,077)
Share options exercised 91
Shares issued under employee
stock purchase plan 250
Cumulative translation
adjustment
Balance at
September 27, 1997 $ 92,528 $ 70,242 $ (160)
<CAPTION>
CUMULATIVE
TRANSLATION TREASURY
ADJUSTMENT SHARES TOTAL
<S> <C> <C> <C>
Balance at
December 27, 1997 $ -- $ -- $ 185,315
Net income 12,724
Dividends (4,642)
Share options exercised 125
Shares issued under employee
stock purchase plan 476
Cumulative translation
adjustment 733 733
Purchase treasury shares (2,378) (2,378)
Balance at
September 26, 1998 $ 733 $(2,378) $ 192,353
Balance at
December 28, 1996 $ 45 $ -- $ 150,725
Net income 15,666
Dividends (4,077)
Share options exercised 91
Shares issued under employee
stock purchase plan 250
Cumulative translation
adjustment (45) (45)
Balance at
September 27, 1997 $ -- -- $ 162,610
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands)
<CAPTION>
Nine Months Ended
September 26, September 27,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 12,724 $ 15,666
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 27,703 26,956
Deferred income taxes and other 3,398 536
Changes in current assets and
liabilities, excluding effect
of acquisitions:
Accounts receivable and other (11,759) (11,644)
Inventories and customer tooling (1,329) (9,071)
Accounts payable and accrued
liabilities 15,875 2,598
Total adjustments 33,888 9,375
Net cash provided by operating
activities 46,612 25,041
Cash flows from investing activities
Purchase of property, plant and
equipment (32,383) (25,346)
Liquidation (investment) in
marketable securities 24,420 (1,634)
Business acquired (10,082) (2,415)
Proceeds from sale of assets -- 5,604
Net cash used for investing activities (18,045) (23,791)
Cash flows from financing activities
Issuance of common shares 601 343
New debt 15,000 --
Maturities of long-term debt (23,685) (2,075)
Dividends (4,642) (4,077)
Purchase of treasury shares (2,378) --
Net cash used for financing activities (15,104) (5,809)
Net change in cash and short-term investments 13,463 (4,559)
Cash and short-term investments at
beginning of year 2,317 6,580
Cash and short-term investments at
end of third quarter $ 15,780 $ 2,021
Supplemental Schedule of Noncash Activities:
In connection with the restructuring reserve established
for plant closures in March, 1997, goodwill was increased by
$5,400, which is net of income taxes.
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation:
The financial statements have been prepared from the unaudited
financial records of the Company. In the opinion of management,
the financial statements include all adjustments consisting only
of normal recurring adjustments necessary for a fair presentation
of the results of operations and financial position for the
interim periods.
Note 2 - Inventories:
<TABLE>
Inventories consist of the following:
(in thousands of dollars)
<CAPTION>
September 26, December 27,
1998 1997
<S> <C> <C>
Raw materials $32,945 $23,591
Work in process and
finished goods 30,026 18,674
LIFO Reserve (1,336) (1,336)
$61,635 $40,929
</TABLE>
Note 3 - Net Income per Share:
At the end of 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. 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.
Net income used to compute diluted earnings per share in
1997 included an add-back of $358,000 for the third quarter and
$1,074,000 for the first nine months for the after-tax effect of
interest on the convertible notes. Shares used to compute net
income per share data are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic 12,420 10,735 12,429 10,728
Exercise of options
and warrants 5 246 135 191
Conversion of notes -- 1,665 -- 1,665
Diluted 12,425 12,646 12,564 12,584
</TABLE>
Note 4 - Comprehensive Income
Comprehensive income as defined in SFAS No. 130 "Reporting
Comprehensive Income" for both the three months and the nine
months ending September 26, 1998 includes $733,000 for cumulative
translation adjustments. For the three months and the nine
months ending September 27, 1997, net income as reported does not
differ from comprehensive income.
Note 5 - Contingencies
A chemical cleaning compound, trichloroethylene (TCE), was 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
was named as one of nine potentially responsible parties (PRPs)
in the contamination of this site.
On August 21, 1996 the United States Department of Justice
lodged with the United States District Court for the Northern
District of Indiana (the Court) 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 the Indiana Department of
Environmental Management would bring Excel's total obligation to
approximately $3.4 million, which had been accrued by the
Company.
On June 9, 1998, the Court accepted the consent decree as
filed and accordingly the Company funded in early July its
obligation for the remedial clean-up.
The Company has been named a potentially responsible party
for costs at six 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 September 26, 1998 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.
Note 6 - Accounting Change
The Company historically depreciated plant and equipment using
accelerated depreciation methods for both financial and tax
reporting purposes. A survey conducted by the Company confirmed
that the straight-line method of depreciation as the predominant
method used throughout the automotive supply industry.
Accordingly, for new capital expenditures for the 1998 fiscal
year and thereafter, the Company adopted the straight-line method
of depreciation for financial reporting purposes. The Company
expects a favorable effect of the change on net income for the
fiscal year ending January 2, 1999 of approximately $1.2 million.
Note 7 - Acquisitions
Effective July 1, 1998, the Company purchased through its wholly-
owned subsidiary, Excel Industries Germany GmbH, a German limited
liability company (Excel GmbH), a number of shares of Schade
GmbH, a German limited liability company, equal to 70% of the
aggregate share capital of Schade GmbH, and a 56.67%
participation in the fixed capital of Schade GmbH & Co. KG, a
German limited partnership (Schade KG) of which Schade GmbH is
the sole general partner. The transaction was consummated on
August 28, 1998. As part of the purchase, the Company also
agreed that Excel GmbH will make a contribution to the capital of
Shade KG, which contribution will increase the Company's
participation in Schade KG to 70%. This contribution will be
completed prior to the end of November, 1998 after all
documentation has been completed. The Company's financial
statements have been prepared assuming the contribution has been
made.
The aggregate purchase price for the interests in Schade
GmbH and Schade KG was DM 17,036,400, or approximately U.S.
$9,688,600 plus transaction costs. The amount of the Company's
agreed upon contribution to the capital of Schade KG is DM
27,340,000, or approximately U.S. $15,548,258. Funds for the
purchase price for the interests and the contribution came from
the Company's cash on hand.
The remaining 30 percent of Schade is owned by Hella KG
Hueck & Co., another international OEM supplier. Schade has
sales and manufacturing operations in Germany, Portugal, Spain,
United Kingdom and the Czech Republic with annual sales of more
than $275 million. Schade and its affiliated companies are
engaged in the manufacture and distribution of ornament and roof
moldings, door frames, plastic automobile body components (wind
deflectors, air intakes and ventilation covers), plastic
automobile inside fittings or equipment (center consoles, roof
covers and panels as well as sliding roof covers) and glass
modules for the automotive industry.
The acquisition of Schade 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, approximately $3 million, has been accounted for
as goodwill and is being amortized over 40 years using the
straight line method. This allocation was based on preliminary
estimates and may be revised at a later date.
The accompanying consolidated statements of income include
the operating results of Schade since the effective date of the
acquisition. Pro forma unaudited consolidated operating results
of the Company and Schade for the nine months ended September 26,
1998 and September 27, 1997, assuming the acquisition had been
made as of the beginning of 1998 and 1997, are summarized below
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Nine months ended
9/26/98 9/27/97
<S> <C> <C>
Net sales $913,013 $938,553
Net income 14,690 17,361
Net income per share, basic 1.18 1.61
Net income per share, diluted 1.17 1.46
</TABLE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has two lines of business to distinguish activities
for the light vehicle products segment separate from the
recreational vehicle, mass transit and heavy truck products
segment (RV/MT/HT). 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 holidays 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.
Effective July 1, 1998, the Company acquired 70 percent of
Schade GmbH & Co. KG, Plettenberg, Germany as described below.
Material Changes in Results of Operations:
Quarter Ended September 26, 1998 Compared to
Quarter Ended September 27, 1997
Sales in the third quarter of 1998 increased 31.2% or $66.7
million to $280.2 million from $213.5 million in 1997 as a result
of the Schade acquisition. Sales from Schade totaled $75.9
million in the 1998 third quarter. Sales for the light vehicle
products segment (excluding Schade) were $149.2 million in the
third quarter of 1998 compared to $162.8 million in the 1997
third quarter. North American light vehicle build was down 1.7%
in the third quarter of 1998 compared to the same period in 1997.
Sales in 1998 were reduced by $6.9 million because of the
strikes at General Motors. Our largest customer, Ford Motor
Company, discontinued its long-running Aerostar van and
Thunderbird/Cougar programs in mid-1997 and ended its production
of F-Series light trucks with vent windows. These programs
accounted for approximately $5.1 million in revenue in the 1997
third period. Sales were further affected by approximately
$800,000 for customer selling price reductions associated with
long-term supply agreements. The remainder of the decrease was
primarily due to changes in customers product mix, predominantly
lower passenger car production and higher light truck and sport
utility vehicles. For the RV/MT/HT products segment sales
increased to $55.1 million in 1998 from $50.7 million in 1997 on
the strength of the recreational vehicle and mass transit
industries.
Gross profit was $20.6 million in the current quarter or
7.4% of sales, down from $21.7 million or 10.1% of sales in the
third quarter of 1997. The lower gross margins were primarily
due to the start-up costs and below-cost pricing on major seat
track programs ($6.8 million), the strikes at General Motors
($2.2 million), lower sales volumes in the light vehicle products
segment ($1.1 million), and the effects of the selling price
reductions due to long-term supply agreements ($800,000). These
reductions were offset by the consolidation of Schade ($5.7
million), product mix ($4.4 million), and higher sales volumes in
the RV/MT/HT products segment ($800,000).
The Company historically depreciated plant and equipment
using accelerated depreciation methods for both financial and tax
reporting purposes. A survey conducted by the Company confirmed
that the straight-line method of depreciation as the predominant
method used throughout the automotive supply industry.
Accordingly, for capital expenditures for the 1998 fiscal year
and thereafter, the Company adopted the straight-line method of
depreciation for financial reporting purposes. The Company
expects a favorable effect of the change on net income for the
fiscal year ending January 2, 1999 of approximately $1.2 million.
Selling, administrative and engineering expenses totaled
$20.0 million in the third quarter of 1998, up from $19.0 million
in the 1997 third quarter. Excluding Schade's $3.4 million,
expenses would have been $2.4 million lower. Approximately
$700,000 of the decrease was due to a reduction in product
development expenses, $400,000 was due to the administrative
costs of the North American facilities closed in late 1997 and
$1.2 million in costs associated with closure of the Italian
operation in 1997.
Interest expense totaled $3.8 million in 1998 up from $2.8
million in the year ago third quarter. The increase was due to
Schade ($1.3 million) which was partially offset by the
conversion of the 10% convertible subordinated notes into common
shares of the Company in October, 1997.
Other income of $417,000 in the 1998 third quarter and
$572,000 in the 1997 period consists primarily of interest income
on marketable debt securities.
Provision for taxes on income in 1998 includes an adjustment
for tax credits for prior years. The Company completed a review
of qualified research and development expenditures for the years
1994-1997 and recorded tax credits totaling $4 million. The
effective rate for U.S. taxes was lowered to 34% for 1998, down
from 35% in 1997 due to the current year's effect of these
credits.
Material Changes in Results of Operations:
Nine Months Ended September 26, 1998 Compared to
Nine Months Ended September 27, 1997
Sales in the first nine months of 1998 increased 4.0% or $29.3
million to $758.5 million from $729.2 million in 1997. Excluding
sales of Schade of $75.9, sales for the light vehicle products
segment decreased to $507.1 million in the first nine months of
1998 from $565.5 million in the 1997 period. North American
light vehicle build was down 1.5% when compared to the 1997 first
nine months.
Ford Motor Company discontinued its long-running Aerostar
van and Thunderbird/Cougar programs in mid-1997 and ended its
production of F-Series light trucks with vent windows which
accounted for approximately $19.6 million in revenue in the 1997
first nine months. Sales in 1998 were reduced by $10.7 million
because of the strikes at General Motors. Also, approximately $4
million of the decrease was a result of the sale of the parking
brake product line which was sold on May 3, 1997. Sales were
further affected by approximately $3.5 million for customer
selling price reductions associated with long-term supply
agreements. The remainder of the decrease was primarily due to
changes in customers product mix, predominantly lower passenger
car production and higher light truck and sport utility vehicles.
For the RV/MT/HT products segment sales increased to $175.4
million in 1998 from $162.8 million in 1997 on the strength of
the recreational vehicle and mass transit industries.
Gross profit was $76.9 million in the nine months ended
September 26, 1998 or 10.1% of sales, down from $89.8 million or
12.3% of sales in the same period of 1997. The lower gross
margins were primarily due to the startup costs and below-cost
pricing on major seat track programs ($11.2 million), the strikes
at General Motors ($3.0 million), lower sales volumes in the
light vehicle products segment ($6.3 million), and the effects of
the selling price reductions due to long-term supply agreements
($3.5 million). These reductions were offset by the
consolidation of Schade ($5.7 million), product mix ($3.2
million), and higher sales volumes in the RV/MT/HT products
segment ($2.2 million).
Selling, administrative and engineering expenses totaled
$56.2 million (which includes $3.4 million for Schade) in the
first nine months of 1998, down from $58.6 million in the 1997
first nine months. Approximately $2.9 million of the decrease
was due to the administrative costs of the facilities closed in
late 1997, $1.8 million was due to a reduction in product
development expenses and $600,000 was due to lower accruals for
management incentive in 1998.
Interest expense totaled $8.1 million in 1998 down from $8.5
million in the year ago first nine months. The decrease was due
to the conversion of the 10% convertible subordinated notes into
common shares of the Company in October, 1997 offsetting Schade's
interest expense.
Other income of $1.5 million consists primarily of interest
income on marketable debt securities of $1.3 million and $500,000
for a state loan forgiven after all contractual requirements were
met, less $485,000 for the Company's share of losses in its
Brazilian joint venture. The $1.4 million in the 1997 first nine
months was primarily interest income on marketable securities.
Provision for taxes on income in 1998 includes an adjustment
for tax credits for prior years. The Company completed a review
of qualified research and development expenditures for the years
1994-1997 and recorded tax credits totaling $4 million. The
effective rate for U.S. taxes was lowered to 34% for 1998, down
from 35% in 1997 due to the current year's effect of these
credits.
Material Changes in Financial Condition:
For the nine months ended September 26, 1998 cash flow from
operations totaled $46.6 million and the reduction of marketable
securities provided $24.4 million. Borrowings on the credit line
totaled $15.0 million. Capital expenditures totaled $32.4
million, $23.7 million was used to repay debt (primarily Schade),
$4.6 million was used for dividends, $10.1 million was used for
the Schade acquisition and $2.4 million was used to acquire
treasury shares in accordance with the buy back program announced
on September 9, 1998. Capital expenditures for the year are
estimated to be $52 million.
Cash and marketable securities amounted to $15.8 million at
September 26, 1998, a decrease of $11.0 million from
December 27, 1997. At September 26, 1998, the Company had
available unused lines of credit of approximately $40 million.
For the next twelve months, the Company expects its current cash
balances, operating cash flow and available credit lines to be
sufficient to finance operating cash needs and capital
expenditures.
Effective July 1, 1998, the Company purchased through its
wholly-owned subsidiary, Excel Industries Germany GmbH, a German
limited liability company (Excel GmbH), a number of shares of
Schade GmbH, a German limited liability company, equal to 70% of
the aggregate share capital of Schade GmbH, and a 56.67%
participation in the fixed capital of Schade GmbH & Co. KG, a
German limited partnership (Schade KG) of which Schade GmbH is
the sole general partner. The transaction was consummated on
August 28, 1998. As part of the purchase, the Company also
agreed that Excel GmbH will make a contribution to the capital of
Shade KG, which contribution will increase the Company's
participation in Schade KG to 70%. This contribution will be
completed prior to the end of November, 1998 after all
documentation has been completed. The Company's financial
statements have been prepared assuming the contribution has been
made.
The aggregate purchase price for the interests in Schade
GmbH and Schade KG was DM 17,036,400, or approximately U.S.
$9,688,600 plus transactions costs. The amount of the Company's
agreed upon contribution to the capital of Schade KG is DM
27,340,000, or approximately U.S. $15,548,258. Funds for the
purchase price for the interests and the contribution came from
the Company's cash on hand.
The remaining 30 percent of Schade is owned by Hella KG
Hueck & Co., another international OEM supplier. Schade has
sales and manufacturing operations in Germany, Portugal, Spain,
United Kingdom and the Czech Republic with annual sales of more
than $275 million. Schade and its affiliated companies are
engaged in the manufacture and distribution of ornament and roof
moldings, door frames, plastic automobile body components (wind
deflectors, air intakes and ventilation covers), plastic
automobile inside fittings or equipment (center consoles, roof
covers and panels as well as sliding roof covers) and glass
modules for the automotive industry.
The acquisition of Schade 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, approximately $3 million, has been accounted for
as goodwill and is being amortized over 40 years using the
straight line method. This allocation was based on preliminary
estimates and may be revised at a later date.
The Company entered into a 1994 Supply Agreement with Ford
Motor Company 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.
Year 2000 Compliance
In 1997, the Company started a program to ensure year 2000
compliance (Y2K) issues would be addressed. This program
addresses information technology (IT), computer controlled
manufacturing processes, and Non-IT systems, as well as,
obtaining assurance that vendors supplying services and materials
will be Y2K compliant. This program is chaired by an internal
committee made up of corporate personnel who have been using
guidelines issued by the Automotive Industry Action Group (AIAG)
The Company's program phases are: Inventory, Risk
Evaluation, Contingency Plan, Remediation, and Testing. The
Company has completed the Inventory phase. Risk Evaluation,
Contingency Plan and remediation steps are scheduled to be
completed by the end of 1998. Testing is scheduled to be
completed by the end of the first quarter 1999. The Company's
program has been reviewed by two different third parties and
received overall ratings of Low to Moderate Risk.
Each plant facility has assigned a Year 2000 program
coordinator to be a part of the committee to enable changes to be
made efficiently. Status reports, action plans and timeliness
are reported to the Company's executive officers on a regular
basis. Newsletters are now being sent to customers on a regular
basis to keep them informed of the Company's status.
All mission critical informational systems software,
manufacturing processes and Non-IT systems, including Schade's,
have been deemed Y2K compliant. Any additions or changes made to
existing applications, which have already been tested, are
reviewed for Y2K compliance. The Company is in the process of
surveying vendors and suppliers to ascertain their status. Costs
for the reviews and changes to date have been minimal (less than
$100,000). Future costs are not expected to exceed $500,000.
The Company has yet to identify the most likely, worst case
scenario. This will be done in conjunction with the risk
evaluation, contingency plan and testing phases of the Company's
program.
The Euro Conversion
Eleven of the fifteen member countries of the European Union (the
participating countries) have agreed to adopt the euro as their
common legal currency on January 1, 1999, based on fixed
conversion rates between their existing sovereign currencies (the
legacy currencies) and the euro. Following introduction of the
euro, the legacy currencies are scheduled to remain legal tender
in the participating countries as denominations of the euro
between January 1, 1999 and January 1, 2002 (the transition
period). During the transition period, public and private
parties may pay for goods and services using either the euro or
the participating country's legacy currency. The euro will then
trade on currency exchanges and be available for non-cash
transactions.
Schade has been reviewing this issue to ascertain that
operations will not be adversely affected. Accounting systems
are being updated so as to be compatible with both the euro and
legacy currency. Schade has issued letters to vendors and
suppliers stating that they will be ready by January 1, 1999 to
execute payments in either the local currency or the euro. No
major problems are anticipated.
Forward-Looking Statements
This report contains certain forward-looking statements which
involve certain risks and uncertainties. Such statements are
subject to certain risks and uncertainties which could cause
actual results to differ materially from those anticipated.
Potential risks and uncertainties include economic factors,
concentration of a substantial percentage of sales in a few major
OEM customers, and other business factors. Readers are cautioned
not to place undue reliance on those forward-looking statements
which speak only as of the date of this report.
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
<S> <C>
(a) The following exhibit is being filed herewith:
(27) Financial Data Schedule
(b) The Registrant filed its Current Report on
Form 8-K, reporting the acquisition on
August 28, 1998 through its wholly-owned
subsidiary, Excel Industries Germany GmbH,
a German limited liability company, a number
of shares of Schade GmbH, a German limited
liability company, equal to 70% of the aggregate
share capital of Shade GmbH, and a 56.67%
participation in the fixed capital Schade GmbH
& Co. KG, a German limited partnership of which
Schade GmbH is the sole general partner.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
<TABLE>
EXCEL INDUSTRIES, INC.
(Registrant)
<S> <C>
Date: November 6, 1998 s/ James O. Futterknecht, Jr.
James O. Futterknecht
Chairman, President and
Chief Executive Officer
Date: November 6, 1998 s/ Joseph A. Robinson
Joseph A. Robinson
Senior Vice President,
Secretary and
Chief Financial Officer
Date: November 6, 1998 s/ Ike K Eikelberner
Ike K. Eikelberner
Vice President,
Corporate Controller
and Chief Accounting
Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> SEP-26-1998
<CASH> 15,780
<SECURITIES> 0
<RECEIVABLES> 199,687
<ALLOWANCES> 3,064
<INVENTORY> 61,635
<CURRENT-ASSETS> 322,090
<PP&E> 373,873
<DEPRECIATION> 142,527
<TOTAL-ASSETS> 606,835
<CURRENT-LIABILITIES> 208,660
<BONDS> 0
0
0
<COMMON> 115,331
<OTHER-SE> 77,022
<TOTAL-LIABILITY-AND-EQUITY> 606,835
<SALES> 758,462
<TOTAL-REVENUES> 758,462
<CGS> 681,584
<TOTAL-COSTS> 737,741
<OTHER-EXPENSES> (1,521)
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<INTEREST-EXPENSE> 8,127
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