-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CoJ00YeQZZrLpkwbA91YpzdeTP7dT56ketkndiNwsJzr6UvkmL1+kS5/zYC0as+P bsq59YprHNUHkFfRef26sw== 0000740868-98-000002.txt : 19980325 0000740868-98-000002.hdr.sgml : 19980325 ACCESSION NUMBER: 0000740868-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980324 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCEL INDUSTRIES INC CENTRAL INDEX KEY: 0000740868 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 351551685 STATE OF INCORPORATION: IN FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08684 FILM NUMBER: 98571562 BUSINESS ADDRESS: STREET 1: 1120 N MAIN ST STREET 2: P O BOX 3118 CITY: ELKHART STATE: IN ZIP: 46515-3118 BUSINESS PHONE: 2192642131 10-K 1 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. 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.
Approximate Building Size Location (in square feet) Light Vehicle Products Segment 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
(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:
Name Age Position and Offices 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
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.
Dividends Share Prices Declared High Low Per Share Fiscal Year Ended December 28, 1996: 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: 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
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." Income Statement Data:
Fiscal Year Ended, Dec 31, Dec 31, Dec 30, 1993 1994 1995 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
Balance Sheet Data:
Dec 31, Dec 31, Dec 30, 1993 1994 1995 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%
Income Statement Data:
Fiscal Year Ended, Dec 28, Dec 27, 1996 1997 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
Balance Sheet Data:
Dec 28, Dec 27, 1996 1997 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%
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. 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 Consolidated Balance Sheet (Amounts in thousands)
Dec. 27, Dec. 28, 1997 1996 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
The accompanying notes are an integral part of this statement. Consolidated Statement of Income (Amounts in thousands, except per share amounts)
Fiscal Year Ended Dec. 27, Dec. 28, Dec. 30, 1997 1996 1995 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
The accompanying notes are an integral part of this statement. Consolidated Statement of Shareholders' Equity (Amounts in thousands)
Common Shares Common Retained Outstanding Shares Earnings 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
Minimum Pension Cumulative Liability Translation Adjustment Adjustment 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.
Treasury Shares Total 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.
Consolidated Statement of Cash Flows (Amounts in thousands)
Fiscal Year Ended Dec. 27, Dec. 28, 1997 1996 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
Fiscal Year Ended Dec. 30, 1995 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.
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:
1997 1996 (000 Omitted) 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
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):
Year Ended 1996 1995 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
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:
1997 1996 (000 Omitted) 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
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:
Year Ended 1997 1996 1995 (000 Omitted) 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
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: Assets exceed Accumulated benefits accumulated benefits exceed assets
1997 1996 1997 1996 (000 Omitted) 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
Major assumptions for 1997 and 1996: Discount rate 7.5% Rate of increase in compensation 5.0% Expected rate of return on plan assets 8.0%
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:
Year Ended 1997 1996 1995 (000 Omitted) 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
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:
1997 1996 (000 Omitted) Accumulated postretirement benefit obligation: 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
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:
1997 1996 (000 Omitted) 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
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:
Year Ended 1997 1996 1995 (000 Omitted) United States $ 29,070 $ 31,531 $ 24,390 Foreign (2,048) (865) -- $ 27,022 $ 30,666 $ 24,390
The provision (benefit) for income taxes is summarized below:
Year Ended 1997 1996 1995 (000 Omitted) Current: 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
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:
1997 1996 (000 Omitted) 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
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:
Year Ended 1997 1996 1995 (000 Omitted) 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
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.
Year Ended 1997 1996 Weighted Weighted Average Average Exercise Exercise Options Price Options Price 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
Year Ended 1995 Weighted Average Exercise Options Price 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
Exercise Price Range $12.25 - $12.38 $16.13 - $19.19 Total 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
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):
Year Ended 1997 1996 Reported Pro-Forma Reported Pro-Forma Net earnings $17,564 $17,191 $ 19,116 $18,882 Per share 1.59 1.55 1.79 1.77
Year Ended 1995 Reported Pro-Forma Net earnings $ 16,265 $16,031 Per share 1.52 1.50
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.
Light Vehicle RV/MT/HT Products Products Corporate Total 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
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):
1997 First Second Third Fourth Quarter Quarter Quarter Quarter 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
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. 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. EXCEL INDUSTRIES, INC. 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. 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
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 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SCHEDULE II
Balance Additions at beginning charged to Classification of period Acquisition expense Year ended December 30, 1995: 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
Balance at end of Deductions period Year ended December 30, 1995: 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.
EXHIBIT INDEX
Page No. Exhibit In Manually Number Description of Exhibit Signed Copy (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.
EX-21 2 EXHIBIT 21
NAME OF SUBSIDIARY STATE OF INCORPORATION 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
EX-23 3 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 EX-27 4
5 1,000 YEAR DEC-27-1997 DEC-27-1997 2,317 24,420 142,228 1,318 40,929 245,861 280,329 119,361 457,797 129,311 0 0 0 114,730 70,585 457,797 962,333 962,333 846,990 926,257 (1,930) 0 10,984 27,022 9,458 17,564 0 0 0 17,564 1.59 1.48
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