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 March 28, 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 April 17, 1998, there were outstanding 12,442,594 common
shares, no par value.
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
Index
<CAPTION>
Page No.
<S> <C> <C>
PART I Financial Information
Consolidated Balance Sheet -
March 28, 1998 and December 27, 1997 1
Consolidated Statement of Income -
Quarter Ended March 28, 1998 and
March 29, 1997 2
Consolidated Statement of Shareholders'
Equity -
Quarter Ended March 28, 1998 and
March 29, 1997 3
Consolidated Statement of Cash Flows -
Quarter Ended March 28, 1998 and
March 29, 1997 4
Notes to Consolidated Financial Statements 5-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II Other Information 12
Signatures 13
Letter Dated May 11, 1998 from Price
Waterhouse LLP Regarding Change in
Accounting Method Exhibit 18
Financial Data Schedules Exhibit 27
</TABLE>
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(in thousands)
<CAPTION>
March 28, December 27,
1998 1997
ASSETS
<S> <C> <C>
Current assets
Cash and short-term investments $ 1,558 $ 2,317
Marketable securities 23,997 24,420
Accounts receivable 148,467 140,910
Customer tooling to be billed 24,727 22,356
Inventories 39,995 40,929
Prepaid expenses 12,195 14,929
Total current assets 250,939 245,861
Property, plant and equipment,
less accumulated depreciation of
(1998 - $126,515; 1997 - $119,361) 164,531 160,968
Other assets 51,438 50,968
$466,908 $457,797
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 83,020 $ 85,469
Accrued liabilities 48,830 41,170
Current portion of debt 2,712 2,672
Total current liabilities 134,562 129,311
Long-term debt 105,317 105,943
Other long-term liabilities 37,546 37,228
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 in 1998, 115,074 114,730
12,434, in 1997, 12,414
Retained earnings 74,409 70,585
Total shareholders' equity 189,483 185,315
$466,908 $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
March 28, March 29,
1998 1997
<S> <C> <C>
Net sales $230,994 $251,216
Cost of goods sold 203,414 220,218
Gross profit 27,580 30,998
Selling, administrative and
engineering expenses 17,236 18,923
Operating income 10,344 12,075
Interest expense (2,278) (2,769)
Other income, net 84 390
Income before income taxes 8,150 9,696
Provision for taxes on income 2,771 3,394
Net income $ 5,379 $ 6,302
Net income per share:
Basic $ .43 $ .59
Diluted $ .43 $ .53
Cash dividends per share $ .125 $ .125
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE QUARTER ENDED MARCH 28, 1998 AND MARCH 29, 1997
(in thousands)
<CAPTION>
MINIMUM
PENSION
COMMON RETAINED LIABILITY
SHARES EARNINGS ADJUSTMENT
<S> <C> <C> <C>
Balance at
December 27, 1997 $114,730 $ 70,585 $ --
Net income 5,379
Dividends (1,555)
Share options exercised 19
Shares issued under employee
stock purchase plan 325
Balance at
March 28, 1998 $115,074 $ 74,409 $ --
Balance at
December 28, 1996 $ 92,187 $ 58,653 $ (160)
Net income 6,302
Dividends (1,341)
Share options exercised 5
Shares issued under employee
stock purchase plan 66
Cumulative translation
adjustment
Balance at
March 29, 1997 $ 92,258 $ 63,614 $ (160)
<CAPTION>
CUMULATIVE
TRANSLATION
ADJUSTMENT TOTAL
<S> <C> <C>
Balance at
December 27, 1997 $ -- $185,315
Net income 5,379
Dividends (1,555)
Share options exercised 19
Shares issued under employee
stock purchase plan 325
Balance at
March 28, 1998 $ -- $189,483
Balance at
December 28, 1996 $ 45 $150,725
Net income 6,302
Dividends (1,341)
Share options exercised 5
Shares issued under employee
stock purchase plan 66
Cumulative translation
adjustment (172) (172)
Balance at
March 29, 1997 $ (127) $155,585
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>
Quarter Ended
March 28, March 29,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,379 $ 6,302
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 7,848 9,178
Deferred income taxes and other (273) 1,592
Changes in current assets and
liabilities, excluding effect
of acquisition:
Accounts receivable and other (4,823) (8,707)
Inventories and customer tooling (1,437) 529
Accounts payable and accrued
liabilities 5,211 15,258
Total adjustments 6,526 17,850
Net cash provided by operating
activities 11,905 24,152
Cash flows from investing activities
Purchase of property, plant and
equipment (11,290) (8,686)
Investment in marketable securities 423 (11,358)
Business acquired -- (2,741)
Net cash used for investing activities (10,867) (22,785)
Cash flows from financing activities
Issuance of common shares 344 71
Maturities of long-term debt (586) (654)
Dividends (1,555) (1,341)
Net cash used for financing activities (1,797) (1,924)
Net change in cash and short-term investments (759) (557)
Cash and short-term investments at
beginning of year 2,317 6,580
Cash and short-term investments at
end of first quarter $ 1,558 $ 6,023
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>
March 28, December 27,
1998 1997
<S> <C> <C>
Raw materials $21,868 $23,591
Work in process and
finished goods 19,463 18,674
LIFO Reserve (1,336) (1,336)
$39,995 $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. Shares
used to compute basic net income per share were 12,425,000 for
1998 and 10,722,000 for 1997.
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 1,665,000 in 1997
for the conversion of the notes and 187,000 in 1998 and 150,000
in 1997 for the exercise of options and warrants. Net income
used to compute diluted earnings per share in 1997 included an
add-back of $358,000 for the after-tax effect of interest on the
convertible notes.
Note 4 - Comprehensive Income
Net income does not materially differ from comprehensive income.
Note 5 - 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 the 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 March 28, 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 has 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 is the predominant
method used throughout the automotive supply industry.
Accordingly, for new capital expenditures for the 1998 fiscal
year and thereafter, the Company has 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 to be approximately
$1.2 million or $.08 per share.
Note 7 - Acquisitions
In March, 1998, the Company signed a definitive agreement to
acquire on July 1, 1998 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. The Company will purchase all shares of
Schade insiders for approximately $10 million and add
approximately $15 million of capital to increase shareholders
equity. 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,
the 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.
<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.
Material Changes in Results of Operations:
Quarter Ended March 28, 1998 Compared to
Quarter Ended March 29, 1997
Sales in the first quarter of 1998 decreased 8% or $20.2 million
to $231.0 million from $251.2 million in 1997. Sales for the
light vehicle products segment were $172.5 million in the first
quarter of 1998 compared to $196.7 million in the 1997 period.
The decrease was due to the discontinuance of several programs in
production in the 1997 period. North American light vehicle
build was similar in the comparative periods, but our largest
customer, Ford Motor Company, dropped 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 $7 million in revenue in the
1997 first period. Approximately $4 million of the decrease was
due to the parking brake product line which was sold in May,
1997. Sales were further affected by approximately $1.5 million
for customer selling price reductions associated with long-term
supply agreements. The remainder of the decrease was 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 $58.5
million in 1998 from $54.5 million in 1997.
Gross profit was $27.6 million in the current quarter or
11.9% of sales, down from $31.0 million or 12.3% of sales in the
first quarter of 1997. The lower gross margins were due to lower
sales volumes in the light vehicle products segment ($2.5
million), the effects of the selling price reductions due to
long-term supply agreements ($1.5 million) and increased launch
costs for new products ($600,000). These reductions were offset
by higher sales volumes in the RV/MT/HT products segment
($800,000) and product mix ($400,000).
The Company has 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 is the predominant
method used throughout the automotive supply industry.
Accordingly, for capital expenditures for the 1998 fiscal year
and thereafter, the Company has 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 to be approximately $1.2
million or $.08 per share.
Selling, administrative and engineering expenses totaled
$17.2 million in the first quarter of 1998, down from $18.9
million in the 1997 first quarter. Approximately $1.1 million of
the decrease was due to the administrative costs of the
facilities closed in late 1997 and $300,000 was due to lower
accruals for management incentive bonuses in 1998.
Interest expense totaled $2,278,000 in 1998 down from
$2,769,000 in the year ago first quarter. The decrease was due
to the conversion of the 10% convertible subordinated notes into
common shares of the Company in October, 1997.
Other income of $84,000, consists of primarily interest
income on marketable debt securities less $245,000 for the
Company's share of losses in its Brazilian joint venture. The
$390,000 in the 1997 first quarter was primarily interest income
on marketable securities.
Provision for taxes on income was at an effective rate of
34% for 1998, down from 35% in 1997. The reduction was due to
increased tax credits expected for 1998.
Material Changes in Financial Condition:
For the quarter ended March 28, 1998 cash flow from operations
totaled $11.9 million and $11.3 million was used for capital
expenditures and an additional $1.6 million for dividends.
Capital expenditures for the year are estimated to be $42
million.
Cash and short-term marketable securities amounted to $25.6
million at March 28, 1998, a decrease of $1.2 million from
December 27, 1997. At March 28, 1998, the Company had available
unused lines of credit of approximately $55 million. For the
remainder of 1998 the Company expects its current cash balances,
operating cash flow and available credit lines to be sufficient
to finance operating cash needs, capital expenditures, the
acquisition of Schade and any environmental clean-up
requirements.
In March, 1998, the Company signed a definitive agreement to
acquire on July 1, 1998 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. The Company will purchase all shares of
Schade insiders for approximately $10 million and add
approximately $15 million of capital to increase shareholders
equity. 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,
the 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.
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.
The Company has started a program to ensure year 2000
compliance (Y2K) issues. This program addresses software
applications 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 not to exceed $250,000.
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
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
18. Letter dated May 11, 1998 from Price Waterhouse
LLP regarding change in accounting method.
(b) Reports on Form 8-K
None
<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> <C>
Date: May 11, 1998 s/ James O. Futterknecht
James O. Futterknecht
Chairman, President and
Chief Executive Officer
Date: May 11, 1998 s/ Joseph A. Robinson
Joseph A. Robinson
Senior Vice President,
Secretary and
Chief Financial Officer
Date: May 11, 1998 s/ Ike K Eikelberner
Ike K. Eikelberner
Vice President,
Corporate Controller
and Chief Accounting
Officer
</TABLE>
Exhibit 18
May 11, 1998
To the Board of Directors of
Excel Industries, Inc.
We have been furnished with a copy of the Company's Form 10-Q
for the quarter ended March 28, 1998. Note 6 therein describes
a change in the method of depreciation of plant and equipment
from predominantly accelerated methods, declining balance, to
the straight-line method. It should be understood that the
preferability of one acceptable method of depreciation
accounting over another has not been addressed in any
authoritative literature and in arriving at our opinion
expressed below, we have relied on management's business
planning and judgment. Based upon our discussions with
management and the stated reasons for the change, we believe
that such change represents, in your circumstances, the adoption
of a preferable alternative accounting principle for
depreciation in conformity with Accounting Principles Board
Opinion No. 20.
We have not made an audit in accordance with generally accepted
auditing standards of the financial statements of Excel
Industries, Inc. for the three-month periods ended March 28,
1998 or March 29, 1997 and, accordingly, we express no opinion
thereon or on the financial information filed as part of the
Form 10-Q of which this letter is to be an exhibit.
Yours very truly,
S/Price Waterhouse LLP
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<PERIOD-END> MAR-28-1998
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<SECURITIES> 23997
<RECEIVABLES> 149891
<ALLOWANCES> 1424
<INVENTORY> 39995
<CURRENT-ASSETS> 250939
<PP&E> 291046
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<CURRENT-LIABILITIES> 134562
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0
0
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<TOTAL-REVENUES> 230994
<CGS> 203414
<TOTAL-COSTS> 220650
<OTHER-EXPENSES> (84)
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 8150
<INCOME-TAX> 2771
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</TABLE>
