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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number 333-43335
AIRXCEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1071795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 North Saint Francis, Wichita, Kansas 67219
(Address of principal executive offices)
(Zip Code)
(316) 832-3400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to 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 [XX] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of
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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. ( )
State the aggregate market value: The Company does not have any publicly
traded equity securities.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
1,000 shares of Common Stock as of December 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART 1
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Airxcel, Inc. (the "Company") is a wholly-owned subsidiary of Airxcel
Holdings Corporation ("Holdings"); formerly known as RV Holdings Corporation.
Airxcel, Inc. was formed in May, 1991 as Recreation Vehicle Products, Inc.
("RVP"). In November, 1995, the Company acquired Carter Shades, Inc., which was
merged with Faulkner Manufacturing. In October, 1997, the company changed its
name to Airxcel, Inc. and the company's board of directors adopted a formal plan
to dispose of the Faulkner Manufacturing division.
On November 10, 1997, the Company completed the acquisition of Crispaire
Corporation ("Crispaire"), a designer, manufacturer and marketer of air
conditioning units and heat pump water heaters. The acquisition was accounted
for as a purchase. Accordingly, the purchase price was allocated to the
underlying assets and liabilities based on their respective fair values. The
financial statements include the accounts and results of operations since that
date.
On March 17, 1998, the Company completed the acquisition of 100% of the
outstanding common stock of Suburban Manufacturing Company, formerly SUBURBAN
Enterprises Group, Inc., ("Suburban"), a designer and manufacturer of heating,
water heating and cooking appliances for the recreation vehicle ("RV") industry
and other specialty products for the heating, ventilating and air conditioning
industry. The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the underlying assets and liabilities based on
their respective fair values. The consolidated financial statements include the
accounts and results of operations since that date.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in the heating, ventilation, and air conditioning
equipment industry. Due to the similarities of the economic characteristics,
production processes, customers, distribution methods and regulatory environment
of the company's products, the Company is managed, operated and reported as one
segment. Financial information about the Company's products and customers is
presented in the consolidated financial statements.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company is a designer, manufacturer and marketer of air conditioners,
furnaces, water heaters, and cooking appliances for the recreation vehicle
industry, and wall mount air conditioners, environmental control units ("ECUs")
and heat pumps for the heating, ventilating and air conditioning industry.
The Company supplies a variety of air conditioners to several of the
world's largest RV original equipment manufacturers ("OEMs"), marketing these
products under the popular and well-established "Coleman" brand name. The
Company believes that its air conditioners are superior to those of its
competitors due to greater air flow capacity, cooling efficiency and more
aerodynamic design. Its reputation as a dependable source of high-quality,
durable products have resulted in its long term relationships with leading RV
manufacturers such as Fleetwood,
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Winnebago, Gulf Stream and Jayco, who have relied on the Company for
substantially all of their RV air conditioner needs for each of the past seven
years. In addition, the Company supplies furnaces, water heaters and cooking
appliances to a large number of OEM's under the "Suburban" brand name. Suburban
entered the RV heating market over 30 years ago and has a well recognized
reputation for innovation, quality and service. Suburban acquired an established
water heater line in 1988 and only recently entered the cooking appliance field.
The Suburban product line has many attractive advantages including quieter
operation and longer life. Combining these advantages with outstanding customer
service, Suburban has longstanding relationships with a number of major OEM
customers such as Winnebago, Starcraft, Fleetwood, and Forest River. Sales to
such OEMs provide the Company with a large installed base of products which
generates a significant recurring stream of revenue through sales of parts and
replacement units in the aftermarket. Aftermarket air conditioner sales to
customers such as RV dealers, supply and service centers are achieved primarily
through an agreement with The Coast Distribution System, Inc. ("Coast"), the
largest wholesale distributor of aftermarket products in the RV industry. The
Company believes that Coast's extensive market penetration and large sales force
provide broad aftermarket coverage and distribution capabilities which enhance
its substantial aftermarket business. The Company also supplies Suburban brand
LP gas fired appliances to Coast and a number of other aftermarket distributors.
As in its air conditioning products, the Company believes its LP gas appliances
offer a greater value and superior performance than those products produced by
its competition. In fiscal 1999, as a percentage of Airxcel's net sales, OEM
sales represented 51%, and aftermarket sales represented 18%.
In addition to serving the RV industry, the Company designs, manufactures
and markets specialty wall mount air conditioners, ECUs and heat pumps for
various applications. Customers are principally manufacturers of
telecommunication shelters and cabinets for the cellular, cable, wireless,
satellite and PCS markets and wholesale distributors for foreign and domestic
telecommunications sales, school districts and modular construction companies.
The Company believes that it is the largest provider of environmental control
equipment for the U.S. telecommunication shelter market. The Company also
believes that it is well-positioned to benefit from growth in cellular, wireless
and PCS telecommunications markets and the resulting demand for
telecommunication shelters. Its focus on customer service and quality control
and its strong reputation for its ability to offer a broad and innovative line
of products in a timely manner has attracted significant telecommunication
providers such as AT & T and MCI/Worldcom to specify its products for new
construction. The Company also believes that it will benefit from an increased
need for cooling units in the nation's schools due to new state regulations and
certain building codes that mandate fresh air requirements in classrooms, the
rebuilding of school system infrastructures and the steadily growing student
population. The Company supplies wall mount air conditioners to multiple school
districts throughout the country, including the Los Angeles Unified School
District, Orange County Florida and Atlanta Public Schools. The Company has a
leading position in each of its principal specialty markets, through solid
relationships with its customers who generally require tailored products and a
high level of customer service. The ability to customize products without
interruption of its larger production lines allows the Company to work closely
with customers to develop and produce equipment that meets their specific needs
quickly and efficiently. In fiscal 1999, sales to the telecommunication shelter
industry and school industry represented 15% and 10%, of Airxcel's total net
sales, respectively.
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AVAILABILITY OF RAW MATERIALS
Most of the major component parts for the products such as compressors,
coils, electrical parts, and motors are purchased preassembled from suppliers.
Significant amounts of steel, copper, and plastic are also purchased. The
Company has strong relationships with its suppliers and has alternate suppliers
for all of its major components.
LIMITED USE OF COLEMAN BRAND NAME
The Company has an exclusive, royalty-free license to use the name
"Coleman" on certain products for a period of 50 years ending in 2041. Such
license automatically renews for another 50 years provided the Company is in
compliance with all material terms of the trademark license agreement. The
company's license to use the "Coleman" brand name on a standalone basis expired
on April 30, 1997. As a result, the Company must use an additional name or
product name in conjunction with the "Coleman" brand name.
SEASONALITY
A significant part of the Company's operations are directly dependent upon
the conditions in the highly cyclical RV industry, highly competitive
telecommunications industry and the commercial and public construction
industry. Companies within these industries, including the Company's largest
customers, are subject to volatility in operating results due to external
factors such as economic, demographic and political changes. These factors
include seasonal factors, fuel availability and fuel prices, overall consumer
confidence and general economic conditions, the level of discretionary consumer
spending, government regulation, interest rates and unemployment.
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
Airxcel's net sales to Fleetwood, Coast, Winnebago, Jayco, Forrest River,
Andrew Corporation and Wesco, its largest customers, accounted for
approximately 43% of the Company's net sales for 1999. There can be no
assurance that the company will maintain or improve these relationships or that
the Company will continue to supply these customers at current levels. The loss
of a significant portion of sales to any of these customers could have a
material adverse effect on the financial position, results of operations or
liquidity of the Company. In addition, many of the arrangements that the
company has with such customers are by purchase order and terminable at will at
the option of either party. A significant decrease or interruption in
businesses of any of the Company's significant customers could have a material
adverse effect on the financial position, results of operations or liquidity of
the Company.
COMPETITIVE CONDITIONS
The recreation vehicle industry is highly competitive, both as to price
and quality of the product. As of December 31, 1999 there were five primary
competitors within the industry. The school and telecommunications air
conditioning industry is also highly competitive with five major competitors.
Although the Company competes with a number of established companies that have
greater financial, technological and marketing resources, Airxcel believes it
has a competitive advantage due to the following:
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Strong Market Position in Principal Niche Markets. The Company has a large
share of the total North American RV air conditioning, heating, and water
heating market and believes it is the largest provider of environmental control
equipment of the U.S. telecommunications market, through sales to manufacturers
of telecommunication shelters. The Company believes that its strong market
shares enable it to maintain significant competitive advantages in serving its
customers, including manufacturing efficiencies and greater product development
and marketing resources. Success in such markets has historically been driven
by areas in which the Company believes it compares favorably with its
competitors such as strong customer relationships, industry expertise, product
quality and speed and reliability of service.
Existing Long-Term Customer Relationships. The Company has long-term
relationships with most of its customers, including several of the largest
OEMs, major telecommunications companies and equipment manufacturers and school
districts. Airxcel has supplied leading OEMs such as Fleetwood, Winnebago, Gulf
Stream and Jayco substantially all of their air conditioner needs for each of
the past seven years. The Company believes that such customer loyalty coupled
with a focused product line and reputation for meeting high volume production
demands have led to its success in the seasonal RV air conditioning industry
and provide a significant advantage over competitors. Airxcel has worked
closely with its telecommunications customers, in some cases for as long as 16
years, to develop equipment to meet such customers' specialized requirements.
To support such equipment, the Company has an extensive network of service
dealers across the U.S. The recent proliferation of shelters for
telecommunications equipment and the importance of protecting such equipment
through the use of cooling units and ECUs has generated an increasing demand
for customized products and has strengthened such relationships. In addition,
the Company has worked with multiple school districts throughout the country,
such as the Los Angeles Unified School District, for as long as eight years, to
develop products which are designed to meet the unique heating and cooling
needs of the classroom such as achieving certain industry ventilation standards
and addressing other concerns such as architectural design and ease of
servicing considerations. The Company believes that customization provides a
high level of customer satisfaction and will foster the continued development
of significant customer relationships.
Strong Brand Name Recognition. The Company markets its RV air conditioners
using the well established and recognized "Coleman" brand name. The "Coleman"
brand name, established in the early part of the twentieth century, is well
recognized as a leading brand name for a variety of products related to the
outdoor recreation industry. Coleman brand air conditioners have been the
leading RV air conditioners since they were introduced into the market and are
recognized by customers to represent high quality and reliability. The
"Suburban" brand name was established in the late 1940's and is synonymous with
providing quality LP gas fired appliances to the RV industry including
furnaces, water heaters and cooking appliances. The Company also benefits from
the strong brand name recognition of its "Marvair" name in the
telecommunication shelter market and its "Scholar" name in the school market.
High Quality Products, Customer Service and Product Design Capabilities. The
Company believes it is recognized as a leader in the RV industry due to its
high product quality and customer service. The Company believes that its
efficient manufacturing and assembly processes enable it to offer competitively
priced products while maintaining high product quality. Because of the seasonal
nature of the RV industry, timely delivery of products to OEMs and aftermarket
customers has played a critical role in the Company's long-standing success.
Similarly, Crispaire has developed a strong reputation with its customers for
its ability to develop unique solutions to customers' environmental control
needs, respond to short lead times
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and to deliver its products in a timely manner. In addition, Crispaire attained
its ISO-9001 certification during 1998 and strives to establish quality
procedures at each of its facilities in order to manufacture the highest
quality products possible.
Extensive Distribution Network and Experienced Sales Force. The Company
believes its sales force includes some of the most experienced sales people in
the RV industry who are located in close proximity to and actively work with
many of the largest OEMs regarding product design issues and estimated future
orders. In addition, the Company provides Coast, the largest wholesale
distributor of replacement parts, supplies, and RV accessories, serving more
than 15,000 customers throughout the U.S. and Canada, with 100% of its RV air
conditioning products. Airxcel believes that Coast provides broad aftermarket
coverage and distribution capabilities. Sales efforts outside the recreation
vehicle industry are organized by industry segments with sales representatives
covering the U.S. telecommunications, school, and construction industries as
well as international sales. In addition, independent sales representatives
actively market products, particularly to school districts, in which sales
agents have developed relationships covering a variety of channels, including
wholesale distributors, factory direct sales, architectural and engineering
firms, original equipment manufacturers, end users and the international market
through distributors.
NUMBER OF PERSONS EMPLOYED
As of December 31, 1999, the Company had approximately 1070 employees of
which approximately 408 were represented by a union.
ITEM 2. PROPERTIES
The following table describes the principal facilities utilized by the
Company for manufacturing, warehousing, and administrative purposes.
Approximate
Location Square Feet Owned/Leased
-------- ----------- ------------
Cordele, Georgia 30,000 Leased
Cordele, Georgia 44,000 Leased
Cordele, Georgia 113,000 Owned
Dayton, Tennessee 285,000 Owned
Elkhart, Indiana 27,000 Owned
Norcross, Georgia 10,080 Leased
Norcross, Georgia 37,000 Leased
Wichita, Kansas 50,000 Leased
Wichita, Kansas 153,000 Owned
ITEM 3. LEGAL PROCEEDINGS
On April 15, 1999, the jury in a case involving patent, trademark and trade
dress infringement, Bard Manufacturing Company et al. v. Crispaire Corporation,
No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire for patent
infringement in an amount of $9,000,000. Crispaire provided a bank letter of
credit to secure a stay of execution of the judgment and has filed an appeal. A
decision by the appellate court on the appeal is expected within nine to
twenty-four months from November 1999. Management of the Company believes that
the current damages award was the result of legal and factual errors both by the
judge and
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jury and that the ultimate result of its appeals process will be either a
reversal or a significant reduction in its liability. The Company does not
believe that the eventual resolution of the Bard Manufacturing litigation will
have a material adverse effect on the Company's financial position, results of
operations or liquidity although, given the inherent risks of litigation, there
can be no assurances in that regard.
In addition to the claim previously described, the Company is a party to
various litigation matters incidental to the conduct of its business.
Management does not believe that the outcome of any of the matters in which it
is currently involved will have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There has been no submission of matters to a vote of security holders
during the fourth quarter of fiscal year 1999.
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PART 2
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company does not have any publicly traded equity securities.
ITEM 6. SELECTED FINANCIAL DATA
Five Year Summary of Selected Financial Data
Years Ended December 31
(in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales $178,946 $ 153,396 $ 58,323 $ 58,169 $ 55,788
Cost of sales 140,771 119,552 44,732 43,803 42,257
-------- --------- -------- ------- --------
Gross profit 38,175 33,844 13,591 14,366 13,531
Selling, general and
administrative expenses (1) 17,146 15,297 4,223 4,558 8,627
Operating income 10,733 16,077 8,729 8,386 2,572
Income (loss) from continuing
operations before income
taxes (1,685) 3,801 4,087 5,968 1,383
Net income (loss) (1,042) 2,251 (4,548) 1,074 (453)
OTHER DATA:
Gross margin percentage 21.4% 22.1% 23.3% 24.7% 24.3%
EBITDA (2) 16,297 20,671 9,850 10,369 5,554
EBITDA margin percentage 9.1% 13.5% 16.9% 17.8% 10.0%
Cash provided by operating
activities 12,812 2,047 7,229 4,249 857
Cash used in investing activities (3,133) (30,346) (44,083) (435) (1,183)
Cash provided by (used in)
financing activities (9,731) 18,785 46,319 (4,209) 553
Depreciation and amortization (3) 5,564 4,594 1,144 1,983 2,982
Capital Expenditures 2,638 1,852 716 459 356
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (4) $ 15,781 $ 28,368 $ 23,186 $ 5,632 $ 8,819
Total assets (5) 118,212 126,590 76,933 24,748 26,561
Total debt 106,910 119,506 90,355 48,280 24,824
Total stockholders' equity
(deficiency) (18,940) (17,898) (25,009) (28,701) (4,255)
- ----------
(1) Selling, general and administrative expense (excluding amortization of
intangible assets and computer software) for 1995 includes $4,279 of
nonrecurring expenses related to costs incurred to compensate certain
option holders for their personal tax liabilities incurred when such
options were exercised.
(2) EBITDA represents earnings before interest expense, net, other
nonoperating expense, net, income tax expense, depreciation and
amortization. Other nonoperating (income) expenses were $2, ($92), $23,
$145 and $92 for the years ended December 31, 1999, 1998, 1997, 1996, and
1995, respectively. EBITDA, as calculated by the Company, may not be
similar to the method used by other companies. Airxcel has included
information concerning EBITDA because it is relevant for covenant analysis
under the Indenture, which defines EBITDA as set forth above for the
periods shown, and is presented because it is used by certain investors as
a measure of a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(3) Excludes depreciation and amortization related to the discontinued
Faulkner manufacturing division.
(4) Working capital represents current assets less current liabilities,
including net assets (liabilities) held for sale of the discontinued
Faulkner manufacturing division of $(662), $(1,290), $(466), $6,421 and
$5,634 as of December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(5) Total assets include net assets held for sale of $6,421 and $5,634 as of
December 31, 1996 and 1995 respectively, and exclude net liabilities of
the discontinued Faulkner manufacturing division of $662, $1,290 and $466
as of December 31, 1999, 1998 and 1997, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased 16.6% from $153.4 million in 1998 to $178.9
million in 1999. Net sales increased primarily due to growth in the RV industry
as well as the school and telecommunications markets. In addition, sales
related to the acquisition of Suburban on March 17, 1998, generated $12.0
million of additional sales.
Gross Profit. Gross profit increased 13.0% from $33.8 million in 1998 to
$38.2 million in 1999. The increase was principally due to the increased sales
volume and Suburban which generated incremental gross margins of $2.5 million.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses increased 11.2% from $17.8 million in 1998 to $19.8 million in 1999
primarily due to increased sales commissions as a result of increased sales,
increased advertising expenses due to increased marketing efforts and $1.6
million of incremental expenses due to Suburban. Selling, general and
administrative expense as a percentage of net sales decreased from 11.6% in
1998 to 11.1% in 1999.
Accrued litigation expense. Accrued litigation expense increased $7.6 million
in 1999 due to the litigation discussed in Note 15 of the notes to the
consolidated financial statements.
EBITDA. EBITDA was $20.7 million in 1998 and $16.3 million in 1999. The
decrease is primarily due to the accrued litigation expense and increased
selling, general and administrative expense as described above offset by
increased gross profit generated from the increased sales volume.
Income from continuing operations before income tax expense and extraordinary
item. Income from continuing operations before income tax expense and
extraordinary item decreased 147.4% from income of $3.8 million in 1998 to a
loss of $1.7 million in 1999 primarily due to increased accrued litigation
expense and selling, general and administrative expense as described above
offset by increased gross profit generated from the increased sales volume.
Net income (loss). Net income decreased from net income of $2.3 million in
1998 to a net loss of $1.0 million in 1999 primarily as a result of the
decreased income from continuing operations as described above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales increased 163.1% from $58.3 million in 1997 to $153.4
million is 1998. Net sales increased primarily due to the $43.1 million and
$42.7 million of additional sales related to the acquisition of the Crispaire
on November 10, 1997 and Suburban on March 17, 1998, respectively. In addition,
the volume of OEM and aftermarket sales of air conditioners increased in
comparison to the year ended December 31, 1997, which the company believes was
the result of dealer inventory adjustments in 1997, growth in the RV industry
and sustained hot weather beginning early in the second quarter of 1998.
Gross Profit. Gross profit increased 148.5% from $13.6 million in 1997 to
$33.8 million in
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1998. The increase was principally due to the respective acquisitions of
Crispaire and Suburban which contributed $8.2 and $10.0, respectively. The
remainder is attributable to the increased volume of OEM and aftermarket sales.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses increased 263.3% from $4.9 million in 1997 to $17.8 million in 1998
primarily due to the acquisition of Crispaire and Suburban which attributed $7.0
million and $6.3 million, respectively. Selling, general and administrative
expenses as a percentage of net sales increased from 8.4% in 1997 to 11.6% in
1998, primarily due to amortization of intangibles related to the acquisitions
and higher selling, general and administrative expenses as a percentage of sales
of the newly acquired businesses.
EBITDA. EBITDA was $9.9 million in 1997 and $20.7 million in 1998, primarily
due to the contribution from Crispaire and Suburban of $3.3 and $5.9,
respectively. The remainder is attributable to the increased volume of OEM and
aftermarket air conditioner sales offset by increased selling, general and
administrative expenses as noted above.
Income from continuing operations before income tax expense and extraordinary
item. Income from continuing operations before income tax expense and
extraordinary item decreased 7.3% from $4.1 million in 1997 to $3.8 million in
1998 primarily due to increased gross profit offset by higher interest expense
as a result of the issuance of $90.0 million of senior subordinated debt in
November, 1997, borrowings under the amended credit agreement with the bank of
$28.0 million in March 1998 and increased selling, general and administrative
expense as described above.
Net income (loss). Net income increased from a net loss of $4.5 million in
1997 to net income of $2.3 million in 1998 primarily as a result of the
extraordinary loss of $1.6 million for early extinguishment of debt and losses
from operations of the discontinued Faulkner manufacturing division of $5.5 in
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $12.8 million in net cash flow from operating activities
for the year ended December 31, 1999 compared to $2.0 million for 1998,
primarily as a result of increased revenues and reductions in accounts
receivable and inventories, offset by accrued litigation expense.
Cash used in investing activities includes the March 1998, acquisition of
Suburban for approximately $28.4 million. The excess of the purchase price over
the estimated fair value of assets acquired of $17.0 million was accounted for
as goodwill and is being amortized over the straight line method for 40 years.
Capital expenditures were $2.6 million, $1.9 million, and $.7 million for the
years ended December 31, 1999, 1998, and 1997, respectively. The increase in
1999 is primarily due to the expansion of the Company's production facility of
$1.2 million.
Capital expenditures for 2000 are expected to be slightly above the 1999 level
which includes the normal replacement of machinery and equipment. It addition,
the Company intends to purchase a new press for one of its production
facilities.
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On November 5, 1997 the Company issued $90 million of 11% senior subordinated
debt (matures November 5, 2007). Substantially all of the proceeds were used by
the Company to finance its acquisition of substantially all of the net assets of
Crispaire, to repay certain indebtedness and to pay financing costs associated
with the offering. On March 17, 1998, the Company amended it's credit agreement
with a bank to include a $10 million term loan and a $28 million revolving
credit facility (matures March 31, 2005 and March 31, 2003, respectively). The
proceeds of the credit agreement were used by the Company to finance its
acquisition of the outstanding stock of Suburban. The Company's term loan and
revolving credit facility with the bank permits borrowings at interest rates
based on either the bank's base rate or Libor rate plus a factor (8.46% combined
rate at December 31, 1999) based on certain financial covenants. The available
line on the revolving credit facility is limited to the lessor of $28 million or
85% of net accounts receivable, 60% of net inventories, and cash and cash
equivalents. On April 7, 1998 the Company entered into a three year interest
rate cap agreement (notional principal amount of $10 million) to reduce the
impact of increases in interest rates.
Covenants under the Company's credit facility with the bank restrict the
ability, subject to certain exceptions, to dispose of assets, incur additional
indebtedness, guarantee obligations, prepay other indebtedness or amend other
debt instruments, make distributions or pay dividends, redeem or repurchase
capital stock, create liens on assets, make acquisitions, engage in mergers or
consolidations, and change the business conducted by the Company. In addition,
the Company is required to maintain compliance with various financial ratios
including interest coverage ratio, leverage ratio, minimum EBITDA, and debt
service coverage ratio.
The Company meets its working capital, capital equipment requirements and cash
requirements with funds generated internally and funds from agreements with a
bank. Management currently expects its cash on hand, funds from operations and
borrowings available under existing credit facilities to be sufficient to cover
both short-term and long-term operating requirements.
YEAR 2000 UPDATE
During 1999 the Company completed the process of preparing for the Year 2000
date change. This process involved identifying and remediating date recognition
issues in the Company's computer systems, products and services, working with
third parties to address their Year 2000 issues, and developing contingency
plans to address potential risks in the event of Year 2000 failures. To date,
the company has successfully managed the transition.
Although considered unlikely, unanticipated issues in the Company's products,
services and systems, including problems associated with its major vendors and
suppliers and disruptions to the economy in general, could still occur despite
efforts to date to achieve Year 2000 readiness. The Company will continue to
monitor its computer systems, products and services, including interaction with
clients, major vendors and suppliers throughout 2000 to address Year 2000
issues.
The costs to address the Year 2000 related issues to date were $684,000 and were
funded through current operations. The Company does not anticipate such costs to
become material in the future. Although the company is not aware of any material
operational or financial Year 2000 related issues not being addressed, the
company cannot assure that its computer systems, products or services or the
computers and other systems of others upon which the company depends will not
incur Year 2000 issues, that the costs of its Year 2000 program will not become
Page 12 of 41
13
material or that the Company's alternative plans will be adequate. If any such
risks (either with respect to the Company or its customers or suppliers)
materialize, the company could experience material adverse consequences to its
business.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999 the Company adopted, as required, Statement of
Position ("SOP 98-1"), Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. SOP 98-1 required that certain costs for the
development of internal use software be capitalized, including the costs of
coding, software configuration, upgrades and enhancements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"). SFAS 133 requires that a Company recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Pursuant to an amendment
by the FASB, SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and should not be retroactively applied to
financial statements of periods prior to adoption. The adoption of SFAS 133 will
not impact the Company's consolidated financial position, results of operations
or cash flows.
INFLATION
Results of operations have not been significantly affected by inflation since
inception. The Company, in the normal course of business, has been able to
offset the impact of increased costs through operating efficiencies and selected
price increases.
FORWARD-LOOKING INFORMATION
Except for the historical financial information contained herein, this Form
10-K contains certain forward-looking statements. For this purpose, any
statements contained in this Form 10-K that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", or "continue", the negative or other variations thereof, or
comparable terminology, are intended forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors,
including possible changes in economic conditions, demographic and political
changes, prevailing interest rates or fuel prices, or the occurrence of
unusually severe weather conditions, overall consumer confidence and general
economic conditions, the level of discretionary consumer spending, government
regulation, and unemployment that can affect both the purchase and usage of
recreational vehicles, which, in turn, affects purchases by consumers of the
products that the Company sells.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk on variable rate financial instruments: The Company maintains a
$36 million credit facility which permits borrowings at interest rates based on
either the bank's base rate or LIBOR. Increases in market interest rates would
cause interest expense to increase and earnings before income taxes to decrease.
The change in interest expense and earnings before income taxes would be
dependent upon the weighted average outstanding borrowings during the reporting
period following an increase in market interest rates. Based on the Company's
current
Page 13 of 41
14
outstanding borrowings under the credit facility at an average interest rate of
8.0% per annum, a 1% increase in market interest rates would increase interest
expense and decrease earnings before income taxes by approximately $163,000.
Market risk on fixed-rate financial instruments: Included in long-term debt
are $90 million of 11% Senior Subordinated Notes due 2007. Increases in market
interest rates would generally cause a decrease in the fair market value of the
Notes and a decrease in market interest rates would generally cause an increase
in fair value of the Notes.
Page 14 of 41
15
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Airxcel, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a)(1) on page 39 present fairly, in all material
respects, the financial position of Airxcel, Inc. and its subsidiary at December
31, 1999 and 1998 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 14 (a)(2) on page 39 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the auditing standards generally accepted in
the United States, 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.
PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 11, 2000
Page 15 of 41
16
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
1999 1998
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 125 $ 177
Accounts receivable, net of
allowances for doubtful accounts
of $490 and $478, respectively 15,576 19,703
Inventory 25,552 27,434
Prepaid expenses 289 105
Income taxes receivable 732 - -
Deferred income taxes 2,235 2,352
------------- -------------
Total current assets 44,509 49,771
------------- -------------
Property, plant and equipment, net 17,871 18,163
Computer software, net 582 87
Intangible assets, net 51,497 54,151
Loan financing costs, net 3,753 4,418
------------- -------------
Total assets $ 118,212 $ 126,590
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 1,387 $ 1,465
Cash overdraft 2,865 - -
Accounts payable 7,479 10,719
Warranty reserve 1,923 1,856
Accrued vacation expense 814 777
Accrued interest 1,387 1,579
Other accrued expenses 12,211 3,717
Liabilities of discontinued operations 662 1,290
------------- -------------
Total current liabilities 28,728 21,403
Long-term debt, less current portion 105,523 118,041
Deferred income taxes 2,901 5,044
------------- -------------
Total liabilities 137,152 144,488
------------- -------------
Commitments and contingencies (see Notes 1 and 4) - - - -
Stockholder's equity (deficiency):
Common stock, par value $1; authorized
1,000 shares; 1,000 shares issued and
outstanding 1 1
Additional paid-in capital 26,946 26,946
Accumulated deficit (45,887) (44,845)
------------- -------------
Total stockholder's equity (deficiency) (18,940) (17,898)
------------- -------------
Total liabilities and stockholder's equity
(deficiency) $ 118,212 $ 126,590
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
Page 16 of 41
17
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended
-----------------------------------------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
Net sales $178,946 $153,396 $ 58,323
Cost of goods sold 140,771 119,552 44,732
------------ ------------ ------------
Gross profit 38,175 33,844 13,591
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 17,146 15,297 4,223
Amortization of intangible assets and computer
software 2,696 2,470 639
Accrued litigation 7,600 - - - -
------------ ------------ ------------
Total operating expenses 27,442 17,767 4,862
------------ ------------ ------------
Income from operations 10,733 16,077 8,729
Interest expense 12,416 12,368 4,619
Other (income) expense, net 2 (92) 23
------------ ------------ ------------
Income (loss) from continuing operations before
income tax expense and extraordinary item (1,685) 3,801 4,087
Income tax expense (benefit) (380) 1,550 1,553
------------ ------------ ------------
Income (loss) from continuing operations before
extraordinary item (1,305) 2,251 2,534
Discontinued operations:
Loss from operations of Faulkner Manufacturing,
less applicable income tax benefit of $1,153 - - - - 1,880
Loss (recovery) on disposal of Faulkner
Manufacturing less applicable income tax
benefit (expense) of ($165), $0, and $2,079,
respectively (263) - - 3,571
------------ ------------ ------------
Income (loss) before extraordinary item (1,042) 2,251 (2,917)
Extraordinary losses on early extinguishments of
debt, less applicable income tax benefit of
$641 - - - - 1,631
------------ ------------ ------------
Net income (loss) $(1,042) $ 2,251 $(4,548)
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
Page 17 of 41
18
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S
EQUITY (DEFICIENCY)
(in thousands, except shares)
Common Stock Additional
------------- Paid-in Accumulated
Shares Amount Capital Deficit Total Equity
------ ------ ----------- ----------- ------------
Balances, January 1, 1997 1,000 $ 1 $ 13,846 $ (42,548) $ (28,701)
Capital contribution - - - - 8,240 - - 8,240
Net loss - - - - - - (4,548) (4,548)
------ ------ ----------- ----------- ------------
Balances, December 31, 1997 1,000 $ 1 $ 22,086 $ (47,096) $ (25,009)
Capital contribution - - - - 4,860 - - 4,860
Net income - - - - - - 2,251 2,251
------ ------ ----------- ----------- ------------
Balances, December 31, 1998 1,000 $ 1 $ 26,946 $ (44,845) $ (17,898)
Net loss - - - - - - (1,042) (1,042)
------ ------ ----------- ----------- ------------
Balances, December 31, 1999 1,000 $ 1 $ 26,946 $ (45,887) $ (18,940)
====== ====== =========== =========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
Page 18 of 41
19
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
--------------------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
-------------- --------------- ---------------
Cash flows from (to) operating activities:
Net income (loss) $ (1,042) $ 2,251 $ (4,548)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 2,868 2,124 726
Amortization of intangible assets and computer
software 2,696 2,470 739
Amortization of financing costs 665 512 330
Provision for bad debts 398 297 38
Provision for loss (recovery) on disposal of
discontinued operations (428) - - 5,650
Deferred income taxes (2,026) 1,430 (2,206)
Loss on sale of fixed assets 21 220 22
Extraordinary losses on early extinguishments of
debt - - - - 1,631
Changes in assets and liabilities:
Accounts receivable 3,729 (1,160) 1,748
Inventory 1,882 (4,721) 862
Prepaid expenses (916) 105 17
Accounts payable (3,240) (747) 952
Accrued expenses 8,205 (734) 1,268
-------------- --------------- ---------------
Net cash provided by operating activities 12,812 2,047 7,229
-------------- --------------- ---------------
Cash flows from (to) investing activities:
Proceeds from sale of fixed assets 37 14 2
Capital expenditures (2,638) (1,852) (716)
Computer software and intangible expenditures (532) (143) - -
Acquisitions, net of cash acquired - - (28,365) (43,369)
-------------- --------------- ---------------
Net cash used in investing activities (3,133) (30,346) (44,083)
-------------- --------------- ---------------
Cash flows from (to) financing activities:
Cash overdraft 2,865 - - - -
Proceeds from long-term obligations 176,624 155,485 90,109
Principal payments on long-term debt (189,220) (139,334) (48,528)
Financing costs incurred - - (2,226) (3,502)
Capital contribution from parent company - - 4,860 8,240
-------------- --------------- ---------------
Net cash provided by (used in) financing activities (9,731) 18,785 46,319
-------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (52) (9,514) 9,465
Cash and cash equivalents, beginning of period 177 9,691 226
-------------- --------------- ---------------
Cash and cash equivalents, end of period $ 125 $ 177 $ 9,691
============== =============== ===============
Page 19 of 41
20
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended
-------------------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
-------------- ---------------- -----------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 11,896 $ 5,836 $ 6,419
Income taxes, net 2,718 850 1,234
Supplemental disclosure of noncash investing and financing
activities:
Land acquired with debt, net of cash payment of $338 - - - - 375
Equipment financed with capital lease obligations - - 243 - -
Airxcel, Inc. purchased certain assets and liabilities of
Crispaire Corporation as follows:
Tangible assets $ 17,916
Liabilities assumed (4,092)
Intangible assets 29,545
--------------
Fair value of assets acquired $ 43,369
==============
Airxcel, Inc. acquired the outstanding stock of Suburban:
Tangible assets $ 29,007
Intangible assets 26,057
Liabilities assumed (26,699)
--------------
Fair value of assets acquired $ 28,365
==============
The accompanying notes are an integral part of these
consolidated financial statements.
Page 20 of 41
21
AIRXCEL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Airxcel, Inc., formerly known as Recreation Vehicle Products, Inc. (the
"Company") is engaged in designing, manufacturing and marketing recreation
vehicle air conditioning equipment in the United States, Canada and certain
international markets. As described in Note 8, on November 10, 1997, the Company
acquired substantially all of the net assets, properties and rights and assumed
certain related liabilities of Crispaire Corporation ("Crispaire") which
designs, manufactures and markets air conditioning units and heat pump water
heaters. Crispaire markets its products to companies involved in modular
construction, telecommunications, utilities and school districts located
throughout the United States and selected foreign markets. The Crispaire
acquisition was accounted for as a purchase and, accordingly, the financial
statements include the accounts and results of operations of Crispaire since
November 10, 1997. On March 17, 1998 (Note 9) the company acquired 100% of the
outstanding stock of Suburban Manufacturing Company, formerly SUBURBAN
Enterprises Group, Inc. ("Suburban"), a designer and manufacturer of heating,
water heating, and cooking appliances for the recreation vehicle industry and
other specialty products for the heating, ventilating and air conditioning
industry. The Suburban acquisition was accounted for as a purchase and,
accordingly, the financial statements include the accounts and results of
operations of Suburban since March 17, 1998. Due to the similarities of the
economic characteristics, production processes, customers, distribution methods
and regulatory environment of the company's products, the Company is managed,
operated and reported as one segment.
The Company is a wholly-owned subsidiary of Airxcel Holdings Corporation,
formerly known as RV Holdings Corporation (Holdings). The Company is the only
subsidiary of Holdings and Holdings has no operating activities and Holdings has
no material assets other than its investment in the Company. Accordingly,
Holdings is dependent upon the Company for any cash requirements. However,
Holdings does have 1,544,237 shares of $.01 par value common stock and 9,076,923
shares of $1 par value Series A and Series B exchangeable preferred stock
outstanding as of December 31, 1999 and 1998. The Preferred stock which is
exchangeable at the stockholders' option for junior subordinated notes issued by
Holdings, is also subject to mandatory redemption by Holdings on August 31, 2006
for an amount equal to the original proceeds from sale of the stock plus accrued
but unpaid dividends which accrue at 14 percent annually. Total proceeds plus
accrued and unpaid dividends were $14,152 and $12,367 as of December 31, 1999
and 1998, respectively. All proceeds generated from the sale of such common and
preferred shares have been contributed to the Company. However, the Company is
not required to fund the mandatory redemption of these preferred shares. During
1996, Holdings also issued $4,015 of junior subordinated notes to the parent
company of a major stockholder in exchange for cash. All proceeds from the
issuance of these notes have been contributed to the Company. These notes, which
are due in August, 2006, bear interest at 14% payable semiannually in the form
of additional junior subordinated notes or cash at the election of Holdings.
Such notes, plus accrued interest totaled $6,350 and $5,536 as of December 31,
1999 and 1998, respectively. As part of the November 10, 1997, Airxcel
acquisition of Crispaire, Holdings issued $5,304 of junior subordinated notes
(the "PIK Notes") to the seller. The PIK Notes and $3,100 of cash received by
Holdings through the sale of its common stock was contributed by Holdings to the
Company. The PIK notes, which are due in November, 2008,
Page 21 of 41
22
bear interest at 11.4% payable annually in the form of additional junior
subordinated notes or cash at the election of Holdings. Such notes, plus accrued
interest, totaled $6,694 and $5,996 as of December 31, 1999 and 1998,
respectively. All of the notes described above are uncollateralized and are not
guaranteed by the Company. Although Holdings is entirely dependent upon the
Company to service its note obligations and the mandatory redemption provisions
of the Preferred Stock, the Company has no cash requirement to fund Holdings
until at least 2006 based upon the stated intent of Holdings' management to
elect to make interest payments due on all such notes in the form of additional
junior subordinated notes.
During October 1997, the Company's board of directors adopted a formal plan to
dispose of its awning business (see Note 13).
On August 22, 1996 (the "closing date"), RV Products Holding Corporation and
Subsidiary consummated exchange offers and adopted amendments to its Restated
Certificate of Incorporation pursuant to which the outstanding debt and common
stock were restructured (the "Recapitalization"). The objective of the
Recapitalization was to refinance existing indebtedness and pay fees and
expenses associated with the Recapitalization.
The significant components of the Recapitalization on the Company are as
follows:
The Company issued new debt with interest rates ranging from 9.75% to
12.0% as of December 31, 1996 as follows:
Revolver $ 7,222
Term loan A 12,750
Term loan B 15,250
Senior subordinate note 14,000
---------------
Total $ 49,222
================
The senior subordinate note was issued with detachable stock warrants to
purchase 65,882 shares of Class B Common Stock of Holdings at $.02 per share at
any time on or before August 22, 2006. The exercise price is subject to
adjustment from time to time in order to prevent dilution of the rights granted
under the warrants. The holders of these warrants are entitled to receive
dividend payments as if the warrants were exercised immediately prior to the
date of record for such dividends. The estimated fair value of the warrants at
the date of issuance has been recognized as a reduction of the note payable (as
debt discount) in the amount of $218 with the offset to additional paid-in
capital. On April 3, 1998 new warrants were issued for 229,662.50 shares of
Class B Common Stock of Holdings. The new warrants are entitled to the same
rights as the existing warrants. Proceeds of $765 were contributed by Holdings
to the Company.
The total proceeds from the debt were used to pay $1,700 in financing costs
relating to the recapitalization and to repay $21,300 of existing debt. The
repayment of debt was accounted for as an early extinguishment of debt whereby
the Company recognized a charge of $184 as an extraordinary loss, net of tax.
The remaining proceeds of the new debt, amounting to $26,200, were distributed
as part of a $33.3 million dividend to Holdings that was used by Holdings to
retire all remaining shares of Common Stock outstanding at that time.
Page 22 of 41
23
2. SIGNIFICANT ACCOUNTING POLICIES:
a. Management's 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.
b. Principles of Consolidation: The consolidated financial statements include
the accounts of the company and its wholly owned subsidiary. Intercompany
transactions and accounts are eliminated in consolidation.
c. Revenue Recognition: Revenue and related direct expenses are recognized
when the merchandise is shipped. Other operating expenses are recognized as
incurred.
d. Cash and Cash Equivalents: The Company classifies as cash and cash
equivalents amounts on deposit in banks and cash invested temporarily in various
instruments with maturities of three months or less at time of purchase.
e. Inventories: Inventories are stated at the lower of cost or market. Costs
are based on standards which approximate the first-in, first-out (FIFO) method.
f. Property, Plant and Equipment: Property, plant and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives as follows:
Buildings and leasehold improvements 15-45 years
Furniture and fixtures 4-10 years
Machinery and equipment 3-15 years
Expenditures for repairs and maintenance are charged to operations as
incurred. Expenditures which materially increase values, change capacities or
extend useful lives are capitalized. The cost of an asset and the related
accumulated depreciation is removed from the appropriate accounts upon sale of
the asset. The resulting gain or loss from the sale is included in operations.
g. Computer Software: All computer software acquisition and development costs,
including applicable internal labor, are capitalized and subsequently reported
at the lower of unamortized cost or net realizable value. The cost of
capitalized software is amortized over its estimated useful lives (generally 5
years). Accumulated amortization as of December 31, 1999, 1998 and 1997 was $66,
$654 and $635, respectively. Amortization for the years ended December 31, 1999,
1998 and 1997 was $32, $19, and $10, respectively.
Page 23 of 41
24
h. Intangible Assets: Intangible assets are recorded at cost and are
amortized on a straight-line basis over their estimated economic lives as
follows:
Amortization December 31, December 31,
Period 1999 1998
----------- -------- --------
Non-compete agreement 3-5 years $ 1,100 $ 1,100
Trademarks and contract 1-50 years 19,811 19,811
Patents 5-7 years 3,609 3,600
Assembled work force 10-20 years 2,000 2,000
Customer base 20 years 7,500 7,500
Goodwill 40 years 23,036 23,036
-------- --------
57,056 57,047
Less accumulated amortization 5,559 2,896
-------- --------
$ 51,497 $ 54,151
======== ========
i. Loan Financing Costs: Loan financing costs are amortized using the
effective yield method over the contracted terms of the related debt.
j. Income Taxes: The Company and its parent file a consolidated federal income
tax return. Deferred income taxes are recorded to reflect the tax consequences
in future years of operating loss carry forwards and temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts using enacted tax rates for the years in which these items are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
k. Advertising: The Company expenses advertising costs when the expense is
incurred and classifies it in selling, general and administrative expense. Total
advertising expense amounts to $450, $383, and $183 in 1999, 1998, and 1997,
respectively.
l. Allocation of Interest to Discontinued Operations: Interest expense is
allocated to discontinued operations based on the ratio of net assets of the
discontinued operations to the sum of total net assets of the Company plus debt.
m. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 1999, 1998 and 1997, excluding the $90 million of
senior subordinated notes, approximate fair market value. The fair value of the
Company's senior subordinated notes is $82.8 million at December 31, 1999 based
on the quoted market price for the same issue or similar issues.
n. Recently Issued Accounting Standards: Effective January 1, 1999 the Company
adopted, as required, Statement of Position 98-1 ("SOP 98-1"), Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
required that certain costs for the development of internal use software be
capitalized, including the costs of coding, software configuration, upgrades and
enhancements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that a Company recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Pursuant to an amendment
by the FASB, SFAS 133 is effective for all fiscal quarters of fiscal
Page 24 of 41
25
years beginning after June 15, 2000 and should not be retroactively applied to
financial statements of periods prior to adoption. The adoption of SFAS 133 will
not impact the Company's consolidated financial position, results of operations
or cash flows.
o. Derivatives: The Company uses an interest rate instrument to reduce the
impact of its floating rate debt. The notional amount of the interest rate
agreement is used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss. The differential to be received
or paid is recognized in income over the life of the agreement as adjustments to
interest expense. The Company does not hold or issue derivative financial
instruments for trading purposes.
p. Reclassification: Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform with the 1999 presentation.
Page 25 of 41
26
3. SUMMARY BALANCE SHEET DATA:
Inventory consists of the following: December 31, December 31,
1999 1998
------------ -------------
Raw materials $ 11,860 $ 13,821
Work-in-process 1,825 2,787
Finished goods 11,867 10,826
--------- -----------
$ 25,552 $ 27,434
========= ===========
Property, plant and equipment consist of the following:
December 31, December 31,
1999 1998
------------ -------------
Land and land improvements $ 1,230 $ 1,230
Buildings and building improvements 5,809 5,624
Machinery and equipment 16,017 15,110
Furniture and fixtures 1,445 1,333
Construction in process 1,774 660
--------- -----------
26,275 23,957
Less accumulated depreciation (8,404) (5,794)
--------- -----------
Net $ 17,871 $ 18,163
========= ===========
4. LONG-TERM DEBT:
On March 13, 1998, the Company amended its credit agreement with a bank. The
proceeds of the $38,000 credit agreement were used by the Company to finance its
acquisition of the outstanding stock of Suburban Manufacturing Company (see Note
9).
On November 5, 1997, the Company issued $90,000 of 11% senior subordinated
debt. Substantially all of the proceeds were used by the Company to finance its
acquisition of substantially all of the net assets of the Crispaire Corporation
(see Note 8), to repay certain indebtedness and to pay financing costs
associated with the offering.
Page 26 of 41
27
Long-term debt consists of the following:
December 31, December 31,
1999 1998
------------ ------------
Note payable to bank under a $10,000 term loan
which matures March 31, 2005, with interest at
prime or a Libor base rate plus a factor determinable
based on financial covenants, 8.46% and 7.44% at
December 31, 1999, and 1998, respectively, payable
quarterly. $ 8,000 $ 10,000
Note payable to bank under a $28,000 revolving line
of credit matures on March 31, 2003, with interest at
prime or a Libor base rate plus a factor determinable
based on financial covenants, 8.46% and 7.44% at
December 31, 1999 and 1998, respectively, payable
quarterly. 8,282 18,660
Senior subordinated notes, with interest at 11% payable
semiannually on May 15 and November 15, commencing on
May 15, 1998. 90,000 90,000
Note payable to individual for land purchase, 7.6%, due in
monthly principal and interest payments of $4 through
April 1, 2007, collateralized by the land 298 328
Capital leases 329 518
------------ ----------
106,910 119,506
Current portion of long term debt (1,387) (1,465)
------------ ----------
$ 105,523 $ 118,041
============ ==========
Covenants under the Company's credit facility with the bank (both the term
loan and revolving line of credit) restrict the ability, subject to certain
exceptions, to dispose of assets, incur additional indebtedness, guarantee
obligations, prepay other indebtedness or amend other debt instruments, make
distributions or pay dividends, redeem or repurchase capital stock, create liens
on assets, make acquisitions, engage in mergers or consolidations, and change
the business conducted by the Company. In addition, the Company is required to
maintain compliance with various financial ratios including interest coverage
ratio, leverage ratio, minimum EBITDA, and debt service coverage ratio. The
credit facility is collateralized by accounts receivable, equipment, general
intangibles, inventory, and investment property.
The Company may redeem the senior subordinated notes, in whole or in part, at
any time on or after November 15, 2002, at redemption prices ranging from 100 to
105.5% of the principal being paid based on the redemption periods defined in
the agreement. The aforementioned notes are uncollateralized and contain, among
other things, certain financial covenants and restrictive provisions pertaining
to the use of funds, payment of dividends and ability to incur obligations.
Page 27 of 41
28
Maturities of long-term debt, including minimum required reductions in the
revolving line of credit commitments based on balances outstanding at December
31, 1999 for each of the five succeeding years are as follows:
Minimum Net Present Long-term
Lease Payment Interest Value Debt Total
------------- ----------- ----------- ---------- --------
2000 135 29 106 1,281 1,387
2001 99 17 82 1,534 1,616
2002 98 9 89 1,538 1,627
2003 54 2 52 10,324 10,376
2004 - - - - - - 1,793 1,793
Thereafter - - - - - - 90,111 90,111
---------- -------- ------- ---------- --------
$ 386 $ 57 $ 329 $ 106,581 $106,910
========== ======== ======= ========== ========
Property, plant and equipment at year-end include the following amounts for
capitalized leases:
December 31,
1999
------------
Machinery and equipment $ 200
Furniture and fixtures 145
------------
$ 345
Less accumulated depreciation (77)
------------
Net property, plant and equipment $ 268
============
5. STOCK OPTION PLANS:
As part of the Recapitalization, Holdings adopted a Stock Option Plan for key
employees and/or directors of the Company to purchase up to 75,032 shares of
Class A Common Stock of Holdings at $1 per share. When granted, the stock
options may be exercised after the "trigger date", and will expire at the
earlier of 10 years from date of grant or the date the employee ceases to be an
employee of the company. As defined in the Stock Option Plan, the "trigger date"
is the date on which the majority shareholder has disposed of all the securities
(i.e. common stock, preferred stock and notes purchased by the majority
shareholder) for cash and/or marketable securities. The number of stock options
that may be exercised is based on the estimated annual interest rate of return
as of the trigger date as set forth in the plan agreement. No compensation
expense relating to this stock option plan will be recorded until the trigger
date.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options granted to the Company's employees is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Page 28 of 41
29
6. Income Taxes:
The significant components of the net deferred income tax asset (liability)
recognized in the accompanying balance sheets are as follows:
December 31, December 31,
1999 1998
-------------- --------------
Provision for discontinued operations $ 256 $ 498
Accrued reserves and liabilities 5,069 2,477
Depreciation (2,710) (2,470)
Intangibles (3,292) (3,640)
State income tax net operating loss carry forwards,
expiring beginning 2010 11 154
AMT credits - - 183
Federal income tax net operating loss carry forwards,
expiring beginning in 2006 - - 106
-------------- --------------
(666) (2,692)
Less current deferred income tax 2,235 2,352
-------------- --------------
Total noncurrent deferred income tax $ (2,901) $ (5,044)
============== ==============
The components of income tax expense before discontinued operations and
extraordinary items are as follows:
December 31, December 31, December 31,
1999 1998 1997
------------ ------------- ------------
Current $ 1,888 $ 120 $ 1,933
Deferred (2,268) 1,430 (380)
------------ ------------- ------------
Total income tax expense before discontinued
operations and extraordinary item $ (380) $ 1,550 $ 1,553
============ ============= ============
Total income tax expense before discontinued operations and extraordinary
item differed from the amounts computed by applying the federal statutory rate
to pretax income as follows:
December 31, December 31, December 31,
1999 1998 1997
------------ ------------- ------------
Income tax expense before discontinued
operations and extraordinary item computed by
applying the federal statutory rate $ (590) $ 1,330 $ 1,431
Adjustment to prior year expense 95 - - (83)
State income taxes, net of federal income tax
benefit (77) 250 156
Goodwill 138 - - - -
Other 54 (30) 49
---------- --------- ---------
Total income tax expense before discontinued
operations and extraordinary item $ (380) $ 1,550 $ 1,553
========== ========= =========
Net deferred income tax assets are recognized based on the expected timing
of the reversal of taxable temporary differences and future taxable income of
the Company.
Page 29 of 41
30
7. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT:
In 1997, the Company extinguished $48,3000 of debt as part of the November 5,
1997 debt offering (see Note 4). The related unamortized loan financing costs
of $1,712 and prepayment penalty of $560 were recorded as an extraordinary loss
on early extinguishment of debt of $1,631 (net of a $641 income tax benefit).
8. ACQUISITION OF CRISPAIRE CORPORATION:
On November 10, 1997, the Company completed the acquisition of the business
of Crispaire Corporation. Pursuant to the purchase agreement, the Company
acquired certain assets and liabilities of the Crispaire Corporation. The
acquisition was funded with a portion of the cash proceeds from the $90,000
senior subordinated note (see Note 4), issuance of $5,300 of junior
subordinated notes by Holdings and the sale of $2,050 of common stock and
$1,000 of preferred stock by Holdings. The acquisition was accounted for as a
purchase. Accordingly, the purchase price was allocated to the underlying
assets and liabilities based on their respective fair values at the date of the
acquisition (see Note 2(h)).
The following reflects the operating results of the Company for the year
ended December 31, 1997 assuming the acquisitions occurred as of the beginning
of each of the respective periods:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
December 31,
1997
------------
Net sales $ 92,062
Loss before extraordinary item (3,691)
Net loss (5,322)
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or the results which may occur in the
future.
9. ACQUISITION OF SUBURBAN MANUFACTURING COMPANY, FORMERLY SUBURBAN
ENTERPRISES GROUP, INC.:
On March 17, 1998, the Company completed the acquisition of 100% of the
outstanding common stock of Suburban Manufacturing Company. The acquisition was
funded with the proceeds from the amended credit agreement with the bank (see
Note 4). The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the underlying assets and liabilities based on
their respective fair values as of the date of the acquisition (see Note 2(h)).
Page 30 of 41
31
The following reflects the operating results of the Company for the years
ended December 31, 1998 and 1997 assuming the acquisition occurred as of the
beginning of the period:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
December 31, December 31
1998 1997
------------ -----------
Net sales $ 163,327 $ 135,527
Income (loss) before
extraordinary item 3,593 (3,055)
Net income (loss) 1,787 (4,247)
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or the results which may occur in the
future.
10. COMMITMENTS:
The Company leases buildings, machinery and equipment, office equipment and
vehicles which are accounted for as operating leases. Some leases include
renewal options and others contain purchase options. Total rental expense for
operating leases was $784, $578 and $448 for the years ended December 31, 1999,
1998 and 1997, respectively.
Commitments for minimum lease payments under noncancellable leases as of
December 31, 1999 are as follows:
Operating
Leases
---------
2000 $ 589
2001 188
2002 77
2003 41
2004 26
---------
$ 921
=========
As part of the Crispaire acquisition, the Company entered into certain
management and employment agreements. Compensation expense related to these
agreements was $379, $366, and $51 for the years ended December 31, 1999, 1998
and 1997, respectively. Under the agreements, future management fees are $282
for the year ended December 31, 2000.
11. BENEFIT PLAN:
Substantially all employees of the RV Products division and the Crispaire
division are eligible to participate in the 401(k) plans offered by each
company. Subject to certain conditions, the divisions may match up to 30% and
25% of the employees' contributions, respectively, up to a maximum of 6% of the
employees' annual salary. In addition, the divisions can make an additional
contribution determined at the discretion of the Company's Board of Directors.
The Company's contribution to its 401(k) plans for the years ended December 31,
1999, 1998 and 1997 totaled $315, $276 and $261, respectively.
Page 31 of 41
32
Suburban sponsors two contributory defined benefit pension plans, the Suburban
Manufacturing Company Retirement Plan ("Plan 1") and the Suburban Manufacturing
Company Retirement Plan for Bargaining Employees ("Plan 2"). The plans cover
substantially all Suburban Manufacturing Company employees meeting certain
eligibility requirements. Assets of the plans consist of various marketable
securities and investments in bond funds. The Company's funding policy is to
contribute amounts that are sufficient, when added to participants'
contributions, to fund the retirement benefits of all participants in accordance
with the requirements of the Internal Revenue Code.
Plan 1 Plan 2
------------ -------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at 9-30-98 $ 2,610 $ 1,698
Service cost 155 160
Interest cost 182 117
Benefits paid (65) (75)
Actuarial gain (loss) (79) 12
Change in assumptions (224) (136)
---------- ----------
Benefit obligation at 9-30-99 $ 2,579 $ 1,776
---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at 9-30-98 $ 1,942 $ 1,433
Employer contributions 142 97
Employee contributions 35 47
Actual return on plan assets 340 256
Benefits paid (65) (75)
---------- ----------
Fair value of plan assets at 9-30-99 $ 2,394 $ 1,758
---------- ----------
Unfunded status $ 185 $ 18
Unrecognized net actuarial gain 165 54
Unrecognized prior service cost - - - -
---------- ----------
Accrued benefit cost $ 350 $ 72
========== ==========
Weighted-average assumptions as of September 30, 1999:
Discount rate 7.5% 7.5%
Expected return on plan assets 8.5% 8.5%
Rate of compensation increase 3.0% 3.0%
12. SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
The Company's ten largest customers accounted for approximately 50%, 50% and
85% of sales for the years ended December 31, 1999, 1998 and 1997, respectively,
and approximately 50%, 31% and 33% of accounts receivable at December 31, 1999,
1998 and 1997, respectively. The credit risk on trade receivables is controlled
through credit approvals, limits and monitoring procedures. Sales to customers
in excess of 10% of consolidated net revenues are as follows:
December 31, December 31, December 31
Customer 1999 1998 1997
------------ ------------ -----------
A. $ 24,514 $ 22,187 $ 18,985
B. - - 19,940 15,553
C. - - - - 7,110
Page 32 of 41
33
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 1999 and1998 that exceeded
FDIC insurance limits by $393 and $10, respectively.
13. DISCONTINUED OPERATIONS:
During September 1997, the Company adopted a plan to discontinue its Faulkner
manufacturing division. A significant amount of the assets of the division were
liquidated and the liabilities were settled during 1999 and 1998. Accordingly,
Faulkner is reported as a discontinued operation for the years ended December
31, 1999, 1998 and 1997.
Net sales from Faulkner were $0, $5,569 and $7,964 for the years ended
December 31, 1999, 1998 and 1997, respectively. Interest expense allocated to
discontinued operations was $0, $0 and $1,494 for the years ended December 31,
1999, 1998 and 1997, respectively.
Liabilities of the discontinued operations are $662 and $1,290 at December 31,
1999 and 1998, respectively, which primarily consist of remaining warranty
obligations.
Components of the loss (recovery) on the disposal of Faulkner are as follows:
December 31, December 31, December 31,
1999 1998 1997
-------------- ------------- ------------
Reduction in carrying value of inventories $ - - $ - - $ 2,400
Write-off of intangible assets - - - - 1,100
Accrued holding period loss (428) - - 1,000
Reduction in carrying value of property, plant
And equipment - - - - 450
Accrued employee severance costs - - - - 150
Accrued sales returns - - - - 250
Other accrued expenses - - - - 300
-------------- ------------- ------------
$ (428) $ - - $ 5,650
============== ============= ============
14. CONTINGENCY:
During September 1997, the Company made a decision to upgrade certain air
conditioning units which were sold in previous years. In 1997 the Company's
portion of the costs to complete the upgrade was estimated and accrued at $500.
In 1998 the Company revised the estimate and accrued an additional $100.
Management has an agreement with the vendor that supplied the component to bear
a substantial portion of the total cost. At December 31, 1999 and 1998, the
remaining accrued liability was $99 and $212. Management believes the remaining
liability will be applied to the completion of the upgrade during 2000.
On July 9, 1999 the Company entered into a letter of credit totaling $1,250
which obligates the Company to make payment in the event of a default on a
contract with a customer. Management does not expect any material losses to
result from this off-balance sheet instrument because performance is not
expected to be required, and therefore, is of the opinion that the fair value of
this instrument is zero.
On September 21, 1999 the Company entered into a letter of credit totaling
$7,500 which
Page 33 of 41
34
obligates the Company to make payment in the event the judgment in the matter
discussed in Note 15 is not stayed, vacated, reversed or paid.
15. LITIGATION:
On April 15, 1999, the jury in a case involving patent, trademark and trade
dress infringement, Bard Manufacturing Company et al. v. Crispaire Corporation,
No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire for patent
infringement in an amount of $9,000. Crispaire provided a bank letter of credit
to secure a stay of execution of the judgment and has filed an appeal. A
decision by the appellate court on the appeal is expected within nine to
twenty-four months from November 1999. Management of the Company believes that
the current damages award was the result of legal and factual errors both by the
judge and jury and that the ultimate result of its appeals process will be
either a reversal or a significant reduction in its liability. The Company does
not believe that the eventual resolution of the Bard Manufacturing litigation
will have a material adverse effect on the Company's financial position, results
of operations or liquidity although, given the inherent risks of litigation,
there can be no assurances in that regard.
In addition to the claim that was previously described, the Company is a party
to various other litigation matters incidental to the conduct of its business.
Management does not believe that the outcome of any of the matters in which it
is currently involved will have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
16. DERIVATIVES:
The Company entered into a three year interest rate cap agreement on April 7,
1998 to reduce the impact of its floating rate debt. The agreement, based on a
notional principal amount of $10 million, entitles the Company to receive
payments on the last day of each quarter if the floating Libor rate exceeds the
rate of 7.69% stated in the agreement. The payment amount is calculated at the
actual Libor rate compared to the stated rate applied to the principal amount.
For the periods ended December 31, 1999 and 1998, the floating Libor rate did
not exceed the stated interest rate.
Page 34 of 41
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART 3
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the persons who
are members of the Board of Directors or executive officers of the Company.
Name Age Position
- ------------------- --- -----------------------------------------------
Melvin L. Adams 53 President and Chief Executive Officer, Director
Gregory G. Guinn 51 President -- RV Products
Richard L. Schreck 47 Chief Financial Officer, Secretary, Treasurer
Lonnie L. Snook 64 Vice President -- RV Manufacturing and
Engineering
George D. Wyers 67 President -- Crispaire, Director
Dean T. DuCray 59 Director
Lawrence Jones 68 Director
Thomas F. McWilliams 56 Director
James A. Urry 45 Director
Melvin L. Adams. Mr. Adams has been a Director, the Chief Executive Officer
and President of Airxcel since 1991. From 1989 until 1991, he served as Vice
President of The Coleman Company. From 1979 through 1984, he served as General
Manager of The Coleman Company's Camping Trailer Division. In 1984, he was
promoted to Corporate Vice President & General Manager of Coleman's RV Group. In
1991, he and three officers of RVP led the buy out of Coleman RV Products with
Berkshire Partners from MacAndrews and Forbes.
Gregory G. Guinn. Mr. Guinn was promoted to President of the RV Products
Division of Airxcel, Inc. in 1999. From 1989 to 1998, he served as Vice
President of Sales and Marketing of RVP. Prior to that, Mr. Guinn held various
positions with The Coleman Company, including National Sales Manager and
Marketing Manager of RV Products and Corporate Vice President and General
Manager of RV Products. Mr. Guinn handles all of RVP's major accounts and its
internal sales force.
Richard L. Schreck. Mr. Schreck has been the Chief Financial Officer,
Secretary and Treasurer of Airxcel since 1991. Beginning in 1981, Mr. Schreck
held various positions at The Coleman Company, including Corporate Vice
president of Operational Finance, RV Group Controller and
Controller/Administrative Manager for RV Products. Mr. Schreck is responsible
for all financial and MIS functions at Airxcel.
Lonnie L. Snook. Mr. Snook has been Vice President-Manufacturing and
Engineering of RVP since 1989. Prior to that, Mr. Snook held various positions
at The Coleman Company, including Industrial Engineer, Manager of Industrial
Engineering and Production Superintendent and Factory Manager of RV Products.
Page 35 of 41
36
George D. Wyers. Mr. Wyers has been the President and Chief Executive Officer
of Crispaire since 1988. After the acquisition, he serves as President of the
Crispaire Division of Airxcel. Prior to joining Crispaire, Mr. Wyers spent
twelve years as a General Manager of a leading air conditioning equipment
distributor based in Dallas, Texas.
Dean T. DuCray. Mr. DuCray has been a director of the Company since 1996. In
April 1998 Mr. DuCray retired as Chief Financial Officer and Vice President of
York International Corporation, a position held since 1987, a manufacturer of
heating and air conditioning equipment. Mr. DuCray is currently serving as a
consultant for various companies.
Lawrence Jones. Mr. Jones has been a director of the Company since 1991. Mr.
Jones retired from The Coleman Company February 1, 1994 having served as its
Chairman and CEO since 1989. Mr. Jones served as Chairman of the Executive
Committee at The Coleman Company from 1994 to 1995. From 1995 to1997, Mr. Jones
served as consultant and Chairman of Roller Blade (in line skates) and Prince
Sports (tennis rackets). Mr. Jones currently serves as a Director to Union
Pacific Resources (gas exploration). Mr. Jones retired from the Fleming
Company's (food distribution) Board of Directors on January 1, 1998.
Thomas F. McWilliams. Mr. McWilliams has been a director of the Company since
1996. Mr. McWilliams has been affiliated with Citicorp Venture Capital, Ltd.
("CVC"), a private equity investment company, since 1983 and presently serves as
managing director of CVC as well as a member of CVC's investment committee. Mr.
McWilliams is currently a director of each of Chase Brass Industries, Inc., Ergo
Science Corporation and various privately owned companies.
James A. Urry. Mr. Urry has been a director of the Company since 1996. Mr.
Urry has been with Citibank, N.A. since 1981, serving as a vice president since
1986. He has been a vice president of CVC since 1989. He is a director of
AmeriSource Health Corporation, CLARK Material Handling Corporation, CORT
Business Services Corporation, Hancor Holding Corporation, International Knife
and Saw Corporation, Palomar Technologies, Inc., York International Corporation
and Brunner Mondple.
COMPENSATION OF DIRECTORS
Directors of the Company who are officers, employees of the Company or its
affiliates are presently not expected to receive compensation for their services
as directors. Directors of the Company who are not officers or employees of the
Company or any of its affiliates receive $2,000 per Board meeting attended. In
addition, directors of the Company will be entitled to reimbursement of their
reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the board of directors or committees thereof.
Page 36 of 41
37
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company is determined by the
Board of Directors of the Company. The following table sets forth information
concerning compensation received by the five most highly compensated officers of
the Company for services rendered in the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation ------------------------------------
------------------------------ Options/ LTIP All Other
Name and Principal Position Year Salary Bonus SAR(#) Payouts Compensation(1)
- --------------------------- -----------------------------------------------------------------------
Melvin L. Adams 1999 $ 244,174 $ 50,000 - - - - $ 5,211
President and Chief Executive Officer 1998 215,004 $ 55,052 - - - - 3,791
1997 215,004 - - - - - - 3,822
Gregory G. Guinn 1999 145,834 95,700 - - - - 680
President - RVP 1998 120,838 2,350 - - - - 542
1997 100,008 - - - - - - 535
Richard L. Schreck 1999 145,834 30,000 - - - - 511
Chief Financial Officer, Secretary and 1998 120,838 27,350 - - - - 428
Treasurer 1997 100,008 - - - - - - 355
Lonnie L. Snook 1999 137,504 87,696 - - - - 1,292
Vice President -- RVP Manufacturing 1998 120,838 2,350 - - - - 956
and Engineering 1997 100,008 - - - - - - 950
George D. Wyers 1999 203,859 9,947 - - - - 1,880
President - Crispaire division 1998 203,859 - - - - - - 1,550
1997 23,078 480,835 - - - - - -
- -----------
(1) The named officers have participated in the Company's profit sharing, 401(k)
match, deferred compensation and excess benefit programs. The aggregate payments
made by the Company pursuant to such programs are listed as All Other
Compensation.
EMPLOYMENT AGREEMENTS
In connection with the Crispaire Acquisition, the Company entered into
employment agreements with Mr. Shuford and Mr. Wyers on November 10, 1997. Each
agreement is for a term that expires upon the earlier of October 31, 2000, the
employee's death, voluntary termination, termination by resolution by the Board
of Directors, at the Company's option, or the employee's disability. Mr.
Shuford's base salary is $98,946 per year. Mr. Wyers' base salary is $200,000
per year. An employment agreement with Mr. Sellers, also entered into on
November 10, 1997, has since been terminated by mutual agreement and Mr. Sellers
is no longer employed by the Company. Each employee is eligible for an annual
performance bonus. Each agreement contains a nonsolicitation provision, and Mr.
Wyers' agreement contains a noncompetition provision.
Page 37 of 41
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to the
common and preferred equity interests of Holdings.
Common Stock Percentage of Aggregate
Beneficially Common Voting
Name of Beneficial Owner Owned Stock Power
- ------------------------ ------------ ------------- --------------
Citicorp Venture Capital, Ltd.("CVC") (1) 901,029.05 58.35(2) 40.25%
399 Park Avenue
New York, New York 10043
Melvin L. Adams 141,637.30 9.17 13.23%
George D. Wyers 138,331.53 8.96 12.92%
Gregory G. Guinn 76,348.75 4.94 7.13%
Richard L. Schreck 76,348.75 4.94 7.13%
Lonnie L. Snook 61,533.75 3.98 5.75%
All directors and executive officers as a group
(9 persons, including those named above) 512,324.24 33.18 47.84%
- -----------
(1) Includes shares held by employees and affiliates of CVC.
(2) Includes shares of (i) voting Class A Common Stock representing 40.46% of
outstanding voting Class A Common Stock and (ii) non-voting Class B Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Page 38 of 41
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Part 2, Item 8:
Page
----
Report of Independent Accountants 15
Consolidated Balance Sheets - December 31, 1999 and 1998 16
Consolidated Statements of Operations - Years ended
December 31, 1999, 1998, and 1997 17
Consolidated Statements of Changes in Stockholder's Equity (Deficiency)
Years ended December 31, 1999, 1998, and 1997 18
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998, and 1997 19
Notes to Consolidated Financial Statements 21
(a)(2) The following financial statement schedules are included in Item 14, Part
IV of this report.
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted either because of the absence
of the conditions under which they are required or because the required
information is contained in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
Exhibit Number Description
-------------- -----------
1. Asset Purchase Agreement among Crispaire Corporation and Airxcel,
Inc. and Airxcel Holdings, Inc. dated October 17, 1997.
2. Stock Purchase Agreement among William S. Karol and Airxcel, Inc.
Dated March 17, 1998.
Page 39 of 41
40
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
------------------------
Allowance
Balance at at Balance at
Beginning Charged to Acquisition (1) End of
Description of Year Expense Accounts Deductions Year
- ----------- ----------- ----------- ----------- ----------- ----------
Allowance for Doubtful Accounts
Year ended December 31,
1999 $ 478 $ 398 $ - - $ (386) $ 490
1998 364 297 100 (283) 478
1997 20 38 324 (18) 364
Allowance for Discounts
Year ended December 31,
1999 $ 52 $ 1,440 $ - - $ (1,389) $ 103
1998 52 1,225 - - (1,225) 52
1997 52 1,010 - - (1,010) 52
- ----------------
(1) Deduction for purposes for which reserve was created.
Page 40 of 41
41
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.
Airxcel, Inc.
March 3, 2000 /s/ Melvin L. Adams
- ------------------------------- ---------------------------------
Date Melvin L. Adams
President and Chief Executive
Officer
March 3, 2000 /s/ Richard L. Schreck
- ------------------------------- ---------------------------------
Date Richard L. Schreck
Secretary/Treasurer and Chief
Financial Officer
March 3, 2000 /s/ Lawrence Jones
- ------------------------------- ---------------------------------
Date Lawrence Jones
Director
March 3, 2000 /s/ Dean T. DuCray
- ------------------------------- ---------------------------------
Date Dean T. DuCray
Director
March 3, 2000 /s/ James A. Urry
- ------------------------------- ---------------------------------
Date James A. Urry
Director
March 3, 2000 /s/ Thomas F. McWilliams
- ------------------------------- ---------------------------------
Date Thomas F. McWilliams
Director
March 3, 2000 /s/ George D. Wyers
- ------------------------------- ---------------------------------
Date George D. Wyers
Director
Page 41 of 41