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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, 2000
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
(State or other jurisdiction of
incorporation or organization)
48-1071795
(I.R.S. Employer 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
-------- ------
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
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, 2000
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, currently operating as Marvair, a division of Airxcel,
Inc. ("Marvair"), a designer, manufacturer and marketer of specialty wall mount
air conditioners, environmental control units and heat pumps for various
applications. 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 KODA
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.
On November 3, 2000, the Company completed the acquisition of
Instafreeze, Inc. ("Insta Freeze"), a designer and manufacturer of low-voltage
compressor refrigerators for the RV industry and other applications utilizing
compact compressor refrigerators. 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
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The Company is a designer, manufacturer and marketer of air
conditioners, furnaces, water heaters, cooking appliances and low-voltage
refrigeration units 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, 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 eight 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
2000, as a percentage of Airxcel's net sales, RV industry OEM sales represented
50%, and aftermarket sales represented 16%.
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 for both foreign and domestic telecommunications
sales, school districts, contractors and modular construction companies. Sales
are generated through manufacturers representatives and a direct sales force for
all market segments. 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 continued
growth in cellular, wireless, fiber optics and PCS telecommunications markets
and the resulting demand for telecommunication cabinets and shelters. These
markets are served through OEM accounts like Andrew Structures, Rohn and
Fiberbond. 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, Nextel and Verizon to specify its products for both renovation and
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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 2000, sales to the
telecommunication shelter industry and school industry represented 21% and 6%,
of Airxcel's total net sales, respectively.
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 Enterprises, Coast Distribution,
Andrew Corporation, Winnebago Industries, Forest River, Keystone RV Company and
Jayco, its largest customers, accounted for approximately 37% of the Company's
net sales for 2000. 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,
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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, 2000 there were six primary
competitors to Airxcel within the industry. The school and telecommunications
air conditioning industry is also highly competitive with three 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:
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 eight 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 17 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 nine 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
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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, Marvair 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 and to deliver its products in a timely manner. In
addition, Marvair 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, who are located in close proximity to and actively work with
many of the largest OEMs regarding product design issues and estimated future
orders, includes some of the most experienced sales people in the RV industry.
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, 2000, the Company had 1,022 employees of which 336
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 103,700 Leased
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Cordele, Georgia 113,000 Owned
Dayton, Tennessee 285,000 Owned
Elkhart, Indiana 27,000 Owned
Elkhart, Indiana 10,000 Leased
Longwood, Florida 900 Leased
Norcross, Georgia (1) 10,080 Leased
Norcross, Georgia (1) 37,000 Leased
Wichita, Kansas 50,000 Leased
Wichita, Kansas 153,000 Owned
(1) The manufacturing operations in these locations have been
discontinued. The Company has retained an agent to locate a party desiring to
sub-lease the properties.
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. The appellate court heard the appeal during December 2000 and a decision
is expected within nine months. 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 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 2000.
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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)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales $ 177,896 $ 183,037 $ 157,425 $ 58,323 $ 58,169
Cost of sales 145,369 144,862 123,581 44,732 43,803
--------- --------- --------- -------- --------
Gross profit 32,527 38,175 33,844 13,591 14,366
Selling, general and administrative expenses 16,681 17,146 15,297 4,223 4,558
Operating income 12,141 10,733 16,077 8,729 8,386
Income (loss) from continuing operations before
income taxes 164 (1,685) 3,801 4,087 5,968
Net income (loss) (169) (1,042) 2,251 (4,548) 1,074
OTHER DATA:
Gross margin percentage 18.3% 20.9% 21.5% 23.3% 24.7%
EBITDA (1) 18,072 16,297 20,671 9,850 10,369
EBITDA margin percentage 10.2% 8.9% 13.1% 16.9% 17.8%
Cash provided by operating activities 7,522 12,812 2,047 7,229 4,249
Cash used in investing activities (4,980) (3,133) (30,346) (44,083) (435)
Cash provided by (used in) financing activities (2,495) (9,731) 18,785 46,319 (4,209)
Depreciation and amortization (2) 5,931 5,564 4,594 1,144 1,983
Capital Expenditures 3,125 2,638 1,852 716 459
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (3) $ 18,554 $ 15,781 $ 23,368 $ 23,186 $ 5,632
Total assets (4) 116,960 118,212 126,590 76,933 24,748
Total debt 107,338 106,910 119,506 90,355 48,280
Total stockholders' equity (deficiency) (19,109) (18,940) (17,898) (25,009) (28,701)
(1) EBITDA represents earnings before interest expense, net, other
nonoperating expense, net, income tax expense, depreciation and
amortization. Other nonoperating (income) expenses were $52, $2, ($92),
$23, and, $145 for the years ended December 31, 2000, 1999, 1998, 1997,
and 1996, 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.
(2) Excludes depreciation and amortization related to the discontinued
Faulkner manufacturing division.
(3) Working capital represents current assets less current liabilities,
including net assets (liabilities) held for sale of the discontinued
Faulkner manufacturing division of $(228), $(662), $(1,290), $(466),
and $6,421 as of December 31, 2000, 1999, 1998, 1997 and 1996,
respectively.
(4) Total assets include net assets held for sale of $6,421 as of December
31, 1996, and exclude net liabilities of the discontinued Faulkner
manufacturing division of $228, $662, $1,290 and $466 as of December
31, 2000, 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, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Sales. Net sales decreased 2.8% from $183.0 million in 1999 to $177.9
million in 2000. Net sales decreased primarily due to reduced sales volume in
the RV industry which the Company believes is a result of the rising interest
rates, increases in gasoline prices, and declines in the stock market.
Gross Profit. Gross profit decreased 14.9% from $38.2 million (21% of net
sales) in 1999 to $32.5 million (18% of net sales) in 2000. The decrease was
principally due to increases in the cost of the products produced as well as a
negative change in the product mix.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses decreased 1.5% from $19.8 million (11% of net sales) in 1999 to $19.5
million (11% of net sales) in 2000 primarily due to cost reductions in response
to the decline in the RV industry.
Accrued litigation expense. Accrued litigation expense decreased $6.7
million in 2000 due to the litigation expense recorded in 1999 as a result of
the litigation discussed in Note 16 of the notes to the consolidated financial
statements.
EBITDA. EBITDA was $16.3 million in 1999 and $18.1 million in 2000. The
increase is primarily due to the decreased accrued litigation expense as
described above offset by decreased gross profit.
Income from continuing operations before income tax expense and
extraordinary item. Income from continuing operations before income tax expense
and extraordinary item increased from a loss of $1.7 million in 1999 to income
of $0.2 million in 2000 primarily due to decreased accrued litigation expense as
described above offset by decreased gross profit.
Net income (loss). Net loss decreased from a net loss of $1.0 million in
1999 to a net loss of $.2 million in 2000 primarily as a result of the decreased
income from continuing operations as described above.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased 16.3% from $157.4 million in 1998 to $183.0
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.
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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 (11% of net sales) in 1998 to $19.8
million (11% of net sales) 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 16 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $7.5 million in net cash flow from operating
activities for the year ended December 31, 2000 compared to $12.8 million for
1999, primarily as a result of increased accounts payable offset by reduced
revenues, increases in inventory and prepaid expenses and other assets and
decreases in accrued expenses.
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.
Cash used in investing activities includes the November 2000, acquisition of
Insta Freeze for approximately $1.4 million. The excess of the purchase price
over the estimated fair value of assets acquired of $1.2 million was accounted
for as goodwill and is being amortized over the straight line method for 10
years.
Capital expenditures were $3.1 million, $2.6 million, and $1.9 million for
the years ended December 31, 2000, 1999, and 1998, respectively. The increase in
2000 is primarily due to a process improvement project at the Company's
production facility of $.6 million.
Capital expenditures for 2001 are expected to be slightly above the 2000
level which includes
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the normal replacement of machinery and equipment and the completion of the
process improvement project described above.
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. The
proceeds of the credit agreement were used by the Company to finance its
acquisition of the outstanding stock of Suburban. On June 30, 2000, the Company
refinanced its Credit Facility with another bank. Substantially all of the
proceeds were used to repay certain indebtedness and to pay financing costs
associated with the new Credit Facility. The total commitment under the credit
facility is $31,000. The Company's revolving credit facility with the bank
permits borrowings at interest rates based on either the bank's base rate or
Libor rate plus 2% (8.78% combined rate at December 31, 2000). The available
line on the revolving credit facility is limited to the lessor of $31 million or
85% of net accounts receivable and 60% of net inventories.
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. The agreement was terminated on June 30, 2000 when
the company refinanced its Credit Facility with another bank.
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 a fixed charge coverage
ratio and maintain a minimum effective capital balance.
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.
RESTRUCTURING CHARGE
In November 2000, the board of directors of the Company approved a
restructuring plan designed to reduce costs and improve operating efficiencies.
The plan involves the consolidation of two manufacturing facilities and the
discontinuance of a product line. A restructuring charge of $496,000 primarily
relates to severance and employee benefit costs and costs relating to the
closure of the facility. The restructuring charge is included in cost of goods
sold and selling, general and administrative of $397,000 and $99,000,
respectively.
At December 31, 2000, $269,000 of restructuring charges remained in accrued
liabilities. The balance was comprised of $65,000 for the reduction of
approximately 56 employees and $204,000 for closure of the manufacturing
facility.
NEW ACCOUNTING PRONOUNCEMENTS
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On January 1, 2001 the Company will adopt Statement of Financial Accounting
Standards No. 133 Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"), as amended. 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. 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 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
$31 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 outstanding borrowings under the credit facility at an average interest
rate of 9.0% per annum, a 1% increase in market interest rates would increase
interest expense and decrease earnings before income taxes by approximately
$168,000 annually.
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 13 of 44
14
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 37 present fairly, in all material
respects, the financial position of Airxcel, Inc. and its subsidiaries at
December 31, 2000 and 1999 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 37 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 of America, 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 our opinion.
PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 2, 2001
Page 14 of 44
15
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 172 $ 125
Accounts receivable, net of allowances for doubtful
accounts of $315 and $490, respectively 14,728 15,576
Inventory 26,524 25,552
Prepaid expenses and other assets 721 289
Income taxes receivable 1,205 732
Deferred income taxes 1,777 2,235
--------- ---------
Total current assets 45,127 44,509
--------- ---------
Property, plant and equipment, net 17,980 17,871
Computer software, net 498 582
Intangible assets, net 50,550 51,497
Loan financing costs, net 2,805 3,753
--------- ---------
Total assets $ 116,960 $ 118,212
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 142 $ 1,387
Cash overdraft 402 2,865
Accounts payable 9,926 7,479
Warranty reserve 2,047 1,923
Accrued vacation expense 864 814
Accrued interest 1,405 1,387
Other accrued expenses 11,559 12,211
Liabilities of discontinued operations 228 662
--------- ---------
Total current liabilities 26,573 28,728
Long-term debt, less current portion 107,196 105,523
Deferred income taxes 1,791 2,901
--------- ---------
Total liabilities 135,560 137,152
--------- ---------
Minority interest 509 --
--------- ---------
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 (46,056) (45,887)
--------- ----------
Total stockholder's equity (deficiency) (19,109) (18,940)
--------- ----------
Total liabilities and stockholder's equity (deficiency) $116,960 $ 118,212
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 15 of 44
16
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended
----------------------------------------------
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Net sales $ 177,896 $ 183,037 $ 157,425
Cost of goods sold 145,369 144,862 123,581
--------- --------- ---------
Gross profit 32,527 38,175 33,844
--------- --------- ---------
Operating expenses:
Selling, general and administrative 16,681 17,146 15,297
Amortization of intangible assets and computer
software 2,805 2,696 2,470
Accrued litigation 900 7,600 --
--------- --------- ---------
Total operating expenses 20,386 27,442 17,767
--------- --------- ---------
Income from operations 12,141 10,733 16,077
Interest expense 11,944 12,416 12,368
Minority interest (19) -- --
Other (income) expense, net 52 2 (92)
--------- --------- ---------
Income (loss) from continuing operations before
income tax expense and extraordinary item 164 (1,685) 3,801
Income tax expense (benefit) 126 (380) 1,550
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary item 38 (1,305) 2,251
Discontinued operations:
Recovery on disposal of Faulkner Manufacturing
less applicable income tax expense of
$174, $165, and $0, respectively (277) (263) --
--------- --------- ---------
Income (loss) before extraordinary item 315 (1,042) 2,251
Extraordinary losses on early extinguishments of
debt, less applicable income tax benefit of
$304 484 -- --
--------- --------- ---------
Net income (loss) $ (169) $ (1,042) $ 2,251
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 16 of 44
17
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DEFICIENCY)
(in thousands, except shares)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total Equity
------ ------ ------- ---------- ------------
Balances, January 1, 1998 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)
Net loss -- - -- (169) (169)
----- ------ ------- -------- --------
Balances, December 31, 2000 1,000 $1 $26,946 $(46,056) $(19,109)
===== ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 17 of 44
18
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
--------------------------------------------------
December 31, December 31, December 31,
2000 1999 1998
--------------- --------------- ---------------
Cash flows from (to) operating activities:
Net income (loss) $ (169) $ (1,042) $ 2,251
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,126 2,868 2,124
Amortization of intangible assets and computer
software 2,805 2,696 2,470
Amortization of financing costs 512 665 512
Provision for bad debts 271 398 297
Recovery on disposal of discontinued operations (434) (428) --
Deferred income taxes (652) (2,026) 1,430
Loss on sale of fixed assets 31 21 220
Minority interest in earnings of subsidiaries (19) -- --
Extraordinary losses on early extinguishments of
debt 489 -- --
Changes in assets and liabilities:
Accounts receivable 668 3,729 (1,160)
Inventory (373) 1,882 (4,721)
Prepaid expenses and other assets (939) (916) 105
Accounts payable 2,385 (3,240) (747)
Accrued expenses (179) 8,205 (734)
--------- --------- ---------
Net cash provided by operating activities 7,522 12,812 2,047
--------- --------- ---------
Cash flows from (to) investing activities:
Proceeds from sale of fixed assets 3 37 14
Capital expenditures (3,125) (2,638) (1,852)
Computer software and intangible expenditures (485) (532) (143)
Acquisitions, net of cash acquired (1,373) -- (28,365)
--------- --------- ---------
Net cash used in investing activities (4,980) (3,133) (30,346)
--------- --------- ---------
Cash flows from (to) financing activities:
Cash overdraft (2,463) 2,865 --
Proceeds from long-term obligations 193,391 176,624 155,485
Principal payments on long-term debt (193,071) (189,220) (139,334)
Financing costs incurred (352) -- (2,226)
Capital contribution from parent company -- -- 4,860
--------- --------- ---------
Net cash provided by (used in) financing activities (2,495) (9,731) 18,785
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 47 (52) (9,514)
Cash and cash equivalents, beginning of period 125 177 9,691
--------- --------- ---------
Cash and cash equivalents, end of period $ 172 $ 125 $ 177
========= ========= =========
Page 18 of 44
19
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended
--------------------------------------------------
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 11,237 $11,896 $5,836
Income taxes, net 1,714 2,718 850
Supplemental disclosure of noncash investing and financing activities:
Equipment financed with capital lease obligations -- -- 24
3
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
==========
Airxcel, Inc. purchased certain assets and liabilities of
Instafreeze, Inc. as follows:
Tangible assets $ 800
Intangible assets 1,289
Liabilities assumed (188)
Minority interest (528)
---------
Fair value of assets acquired $ 1,373
=========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 19 of 44
20
AIRXCEL, INC. AND SUBSIDIARIES
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. On November 10, 1997, the Company acquired substantially
all of the net assets, properties and rights and assumed certain related
liabilities of Crispaire Corporation, currently operating as Marvair
("Marvair"), which designs, manufactures and markets specialty wall mount air
conditioners, environmental control units and heat pumps for various
applications. Marvair markets its products to companies involved in modular
construction, telecommunications, utilities and school districts located
throughout the United States and selected foreign markets. The Marvair
acquisition was accounted for as a purchase and, accordingly, the financial
statements include the accounts and results of operations of Marvair since
November 10, 1997. On March 17, 1998 (Note 8) the Company acquired 100% of the
outstanding stock of Suburban Manufacturing Company, formerly KODA 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. On November 3, 2000 (Note 9) the Company acquired
substantially all of the net assets, properties and rights and assumed certain
related liabilities of Instafreeze, Inc., currently operating as Insta Freeze
("Insta Freeze"), which designs and manufactures low-voltage, high-speed
refrigeration units for the recreation vehicle industry. The Insta Freeze
acquisition was accounted for as a purchase and, accordingly, the financial
statements include the accounts and results of operations of Insta Freeze since
November 3, 2000. 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, 2000, 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 $16,232, $14,152 and $12,367 as of December
31, 2000, 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
Page 20 of 44
21
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 $7,286, $6,350 and $5,536 as of December 31, 2000, 1999 and
1998, respectively. As part of the November 10, 1997, Airxcel acquisition of
Marvair, Holdings issued $5,304 of junior subordinated notes (the "PIK Notes")
to the seller. The proceeds of 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, 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 $7,272 and
$6,694 as of December 31, 2000 and 1999, 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 14).
On August 22, 1996 (the "closing date"), Airxcel Holdings 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.
Page 21 of 44
22
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 $33,300 dividend to Holdings that was used by Holdings to retire
all remaining shares of Common Stock outstanding at that time.
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 subsidiaries.
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, 2000, 1999 and 1998 was
$197, $66 and $654, respectively. Amortization for the years ended December 31,
2000, 1999 and 1998 was $131, $32, and $19, respectively.
Page 22 of 44
23
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 2000 1999
----------------- --------------- ---------------
Non-compete agreement 3-5 years $ 1,100 $ 1,100
Trademarks and contract 1-50 years 19,811 19,811
Patents 5-7 years 3,647 3,609
Assembled work force 10-20 years 2,000 2,000
Customer base 20 years 7,500 7,500
License agreements 10 years 525 --
Goodwill 10-40 years 24,201 23,036
------- -------
58,784 57,056
Less accumulated amortization 8,234 5,559
------- -------
$50,550 $51,497
======= =======
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 $374, $450, and $383 in 2000, 1999, and 1998,
respectively.
l. Shipping and Handling Costs: The Company records charges to customers for
shipping and handling costs as sales and costs incurred by the Company as cost
of goods sold.
m. 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.
n. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 2000, 1999 and 1998, excluding the $90 million of
senior subordinated notes, approximate fair market value. The fair value of the
Company's senior subordinated notes is $46.8 million at December 31, 2000 based
on the quoted market price for the same issue or similar issues.
o. Recently Issued Accounting Standards: On December 3, 1999, the staff of
the Securities and Exchange Commission issued Staff Accounting Bulletin 101
("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 summarizes
certain views in applying generally accepted accounting principles to revenue
recognition. The adoption of SAB 101 did not impact the Company's consolidated
financial position, results of operations or cash flows.
Page 23 of 44
24
p. Derivatives: The Company entered into an interest rate instrument in 1998
to reduce the impact of its floating rate debt which was terminated June 30,
2000. 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.
q. Reclassification: Certain amounts in the 1999 and 1998 financial
statements have been reclassified to conform with the 2000 presentation.
3. SUMMARY BALANCE SHEET DATA:
Inventory consists of the following:
December 31, December 31,
2000 1999
------------ ------------
Raw materials $12,323 $11,860
Work-in-process 2,343 1,825
Finished goods 11,858 11,867
------------ ------------
$26,524 $25,552
========== ===========
Property, plant and equipment consist of the following:
December 31, December 31,
2000 1999
------------ ------------
Land and land improvements $ 1,235 $ 1,230
Buildings and building improvements 7,486 5,809
Machinery and equipment 18,337 16,017
Furniture and fixtures 1,559 1,445
Construction in process 881 1,774
-------- --------
29,498 26,275
Less accumulated depreciation (11,518) (8,404)
-------- --------
Net $ 17,980 $ 17,871
======== ========
4. LONG-TERM DEBT:
On June 30, 2000, the Company refinanced it's Credit Facility with another
bank. Substantially all of the proceeds were used to repay certain indebtedness
and to pay financing costs associated with the new Credit Facility. The total
commitment under the credit facility is $31,000.
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
8).
Page 24 of 44
25
Long-term debt consists of the following:
December 31, December 31,
2000 1999
------------ ------------
Notepayable to bank under a $31,000 revolving line of credit matures on June
29, 2005, with interest at bank's base rate or Libor plus 2%, 8.78% at
December 31, 2000, payable monthly $ 16,803 $ --
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% at
December 31, 1999, payable quarterly -- 8,000
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% at
December 31, 1999, payable quarterly -- 8,282
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 267 298
Note payable to individual for purchase of license agreement,
due in monthly principal and interest payments of $2
through May 1, 2002 37 --
Capital leases 231 330
------------ ------------
107,338 106,910
Current portion of long term debt (142) (1,387)
------------ ------------
$ 107,196 $ 105,523
============ ============
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 a fixed charge coverage
ratio and maintain a minimum effective capital balance. 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 25 of 44
26
Maturities of long-term debt, including minimum required reductions in the
revolving line of credit commitments based on balances outstanding at December
31, 2000 for each of the five succeeding years are as follows:
Minimum Net Present Long-term
Lease Payment Interest Value Debt Total
------------- ----------- ----------- ----------- -----------
2001 103 17 86 56 142
2002 102 10 92 50 142
2003 54 1 53 40 93
2004 -- -- -- 43 43
2005 -- -- -- 16,850 16,850
Thereafter -- -- -- 90,068 90,068
------------- ------------ ----------- ----------- -----------
$ 259 $ 28 $ 231 $ 107,107 $ 107,338
============= ============ =========== =========== ===========
Property, plant and equipment at year-end include the following amounts for
capitalized leases:
December 31,
2000
------------
Machinery and equipment $ 200
Furniture and fixtures 145
-----
$ 345
Less accumulated depreciation (142)
-----
Net property, plant and equipment $ 203
=====
5. STOCK OPTION PLANS:
On May 23, 2000, Holdings adopted a Stock Option Plan for key employees
and/or directors of the Company to purchase up to 324,667.37 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 15 years
from the date the plan is adopted 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 60% or more of the
securities held by it on January 1, 1998 (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 26 of 44
27
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,
2000 1999
------- -------
Provision for discontinued operations $ 88 $ 256
Accrued reserves and liabilities 4,972 5,069
Depreciation (2,204) (2,710)
Intangibles (2,881) (3,292)
State income tax net operating loss carry forwards,
expiring beginning 2010 11 11
-------- --------
(14) (666)
Less current deferred income tax 1,777 2,235
-------- --------
Total noncurrent deferred income tax $(1,791) $(2,901)
======== ========
The components of income tax expense before discontinued operations and
extraordinary items are as follows:
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Current $ 831 $ 1,888 $ 120
Deferred (705) (2,268) 1,430
------------ ------------ ------------
Total income tax expense before discontinued
operations and extraordinary item $ 126 $ (380) $1,550
=========== =========== ============
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,
2000 1999 1998
------------ ------------ ------------
Income tax expense before discontinued
operations and extraordinary item computed by
applying the federal statutory rate $ 50 $(590) $ 1,330
Adjustment to prior year expense -- 95 --
Minority interest 12 -- --
State income taxes, net of federal income tax
benefit 6 (77) 250
Goodwill 149 138 --
Other (91) 54 (30)
------------ ------------ ------------
Total income tax expense before discontinued
operations and extraordinary item $ 126 $(380) $ 1,550
============ ============= =============
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 27 of 44
28
7. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT:
On June 30, 2000, the Company refinanced it's Credit Facility with another
bank. The related unamortized loan financing costs were recorded as an
extraordinary loss on early extinguishment of debt of $484 (net of a $304 income
tax benefit).
8. ACQUISITION OF SUBURBAN MANUFACTURING COMPANY, FORMERLY KODA 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)).
The following reflects the operating results of the Company for the year
ended December 31, 1998 assuming the acquisition occurred as of the beginning of
the period:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
December 31,
1998
------------
Net sales $163,327
Income before extraordinary item 3,593
Net income 1,787
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 INSTA FREEZE, LLC, FORMERLY INSTAFREEZE, INC.:
On November 3, 2000, the Company completed the acquisition of the business
of Insta Freeze. The acquisition was funded with proceeds from the existing
revolving credit facility (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)). Due to the immaterial size of the acquisition,
presentation of pro forma operating results are not required.
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 $945, $784 and $578 for the years ended December 31, 2000,
1999 and 1998, respectively.
Page 28 of 44
29
Commitments for minimum lease payments under noncancellable leases as of
December 31, 2000 are as follows:
Operating
Leases
---------
2001 $ 483
2002 204
2003 132
2004 51
2005 4
---------
$ 874
=========
As part of the Marvair acquisition, the Company entered into certain
management and employment agreements. Compensation expense related to these
agreements was $245, $379, and $366 for the years ended December 31, 2000, 1999
and 1998, respectively.
11. BENEFIT PLAN:
Substantially all employees of the RV Products division and the Marvair
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,
2000, 1999 and 1998 totaled $379, $315 and $276, respectively.
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. The plans actuarial
valuation dates are September 30, 2000 and 1999.
Page 29 of 44
30
December 31, 2000 December 31, 1999
------------------------ --------------------------
Plan 1 Plan 2 Plan 1 Plan 2
------ ------ ------ ------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at 9-30 $ 2,579 $ 1,776 $ 2,610 $ 1,698
Service cost 143 170 155 160
Interest cost 193 131 182 117
Benefits paid (37) (119) (65) (75)
Actuarial gain (loss) 91 27 (79) 12
Change in assumptions (115) (69) (224) (136)
------- ------- ------- -------
Benefit obligation at 9-30 $ 2,854 $ 1,916 $ 2,579 $ 1,776
------- ------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at 9-30 $ 2,394 $ 1,758 $ 1,942 $ 1,433
Employer contributions 57 78 142 97
Employee contributions 33 54 35 47
Actual return on plan assets 329 272 340 256
Benefits paid (37) (119) (65) (75)
------- ------- ------- -------
Fair value of plan assets at 9-30 $ 2,776 $ 2,043 $ 2,394 $ 1,758
------- ------- ------- -------
Unfunded (funded) status $ 78 $ (126) $ 185 $ 18
Unrecognized net actuarial gain 306 216 165 54
------- ------- ------- -------
Accrued benefit cost $ 384 $ 90 $ 350 $ 72
======= ======= ======= =======
Weighted-average assumptions as of September 30:
Discount rate 7.75% 7.75% 7.5% 7.5%
Expected return on plan assets 8.5% 8.5% 8.5% 8.5%
Rate of compensation increase 3.0% 3.0% 3.0% 3.0%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost 143 169 155 160
Interest cost 193 131 182 117
Expected return on plan assets (208) (154) (175) (127)
Recognized net actuarial loss -- -- 4 4
Employee contributions (37) (50) (39) (41)
------- ------- ------- -------
Net periodic benefit cost $ 91 $ 96 $ 127 $ 113
======= ======= ======= =======
12. SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
The Company's ten largest customers accounted for approximately 50%, 49% and
50% of net sales for the years ended December 31, 2000, 1999 and 1998,
respectively, and approximately 56%, 50% and 31% of accounts receivable at
December 31, 2000, 1999 and 1998, 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 2000 1999 1998
------------ ------------ -----------
A. $ 19,604 $ 24,514 $ 22,187
B. -- -- 19,940
Page 30 of 44
31
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 2000 and1999 that exceeded
FDIC insurance limits by $0 and $393, respectively.
13. RESTRUCTURING CHARGE:
In November 2000, the board of directors of the Company approved a
restructuring plan designed to reduce costs and improve operating efficiencies.
The plan involves the consolidation of two manufacturing facilities and the
discontinuance of a product line. A restructuring charge of $496 primarily
relates to severance and employee benefit costs and costs relating to the
closure of the facility. The restructuring charge is included in cost of goods
sold and selling, general and administrative of $397 and $99, respectively. In
addition, the company recognized approximately $235 due to write downs of
inventory as cost of goods sold as it relates to this board decision.
At December 31, 2000, $269 of restructuring charges remained in accrued
liabilities. The balance was comprised of $65 for the reduction of 56 employees
and $204 for closure of the manufacturing facility.
14. 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 2000 and 1999.
Accordingly, Faulkner is reported as a discontinued operation for the years
ended December 31, 2000, 1999 and 1998.
Net sales from Faulkner were $0, $0 and $5,569 for the years ended December
31, 2000, 1999 and 1998, respectively.
Liabilities of the discontinued operations are $228, $662 and $1,290 at
December 31, 2000, 1999 and 1998, respectively, which primarily consist of
remaining warranty obligations.
The recoveries on the disposal of Faulkner are $451, $428, and $0 at
December 31, 2000, 1999 and 1998, respectively.
15. 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, 2000, 1999 and 1998,
the remaining accrued liability was $0, $99 and $212.
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. On September 19, 2000, the letter of credit was
amended which reduced the obligation to $100. Management does not expect any
material losses to result from this off-balance sheet instrument because
Page 31 of 44
32
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 obligates the Company to make payment in the event the judgment in
the matter discussed in Note 16 is not stayed, vacated, reversed or paid.
16. 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. The
appellate court heard the appeal during December 2000 and a decision is expected
within nine months. 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.
17. DERIVATIVES:
The Company entered into a three year interest rate cap agreement on April
7, 1998, which was terminated June 30, 2000, to reduce the impact of its
floating rate debt. The agreement, based on a notional principal amount of
$10,000, entitled 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 was 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.
18. SUBSEQUENT EVENT:
On February 23, 2001 the board of directors consented to sell the assets and
inventory associated with the discontinued product line (Note 13). The purchase
price of $100 plus the net book value of inventory of the discontinued product
line will be paid by a reduction in the principal amount of the PIK Notes (Note
1) held by Holdings.
Page 32 of 44
33
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 54 President and Chief Executive Officer, Director
Gregory G. Guinn 52 President -- RV Products
Richard L. Schreck 48 Chief Financial Officer, Secretary, Treasurer
Lonnie L. Snook 65 Vice President -- RV Manufacturing and
Engineering
George D. Wyers 68 Retired, former President -- Marvair, Director
Dean T. DuCray 60 Director
Lawrence Jones 69 Director
Thomas F. McWilliams 57 Director
James A. Urry 46 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
Page 33 of 44
34
Factory Manager of RV Products.
George D. Wyers. Mr. Wyers retired as President of the Marvair Division of
Airxcel on October 31, 2000. Prior to the acquisition, he served as President
and Chief Executive Officer of Marvair, a position he held since 1988. Prior to
joining Marvair, 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 34 of 44
35
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, 2000.
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 2000 $250,008 $ 87,280 -- -- $ 15,845
President and Chief Executive Officer 1999 244,174 50,000 -- -- 14,181
1998 215,004 55,052 -- -- 12,604
Gregory G. Guinn 2000 162,500 109,965 -- -- 11,174
President - RVP 1999 145,834 95,700 -- -- 8,818
1998 120,838 2,350 -- -- 8,091
Richard L. Schreck 2000 162,500 52,158 -- -- 10,574
Chief Financial Officer, Secretary and 1999 145,834 30,000 -- -- 9,773
Treasurer 1998 120,838 27,350 -- -- 9,221
Lonnie L. Snook 2000 140,004 80,614 -- -- 11,819
Vice President -- RVP Manufacturing 1999 137,504 87,696 -- -- 9,602
and Engineering 1998 120,838 2,350 -- -- 8,431
George D. Wyers 2000 183,084 12,057 -- -- 1,854
Retired, former President - Marvair 1999 203,859 9,947 -- -- 1,880
division 1998 203,859 -- -- -- --
- ---------
(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 Marvair Acquisition, the Company entered into
employment agreements with Mr. Shuford and Mr. Wyers on November 10, 1997. Each
agreement is for a term that expired on October 31, 2000. Mr. Shuford's base
salary is $103,896 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 35 of 44
36
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 36 of 44
37
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 14
Consolidated Balance Sheets - December 31, 2000 and 1999 15
Consolidated Statements of Operations - Years ended
December 31, 2000, 1999, and 1998 16
Consolidated Statements of Changes in Stockholder's Equity (Deficiency)
Years ended December 31, 2000, 1999, and 1998 17
Consolidated Statements of Cash Flows - Years ended
December 31, 2000, 1999, and 1998 18
Notes to Consolidated Financial Statements 20
(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
-------------- -----------------------------------------------------------------------
10.1 Asset Purchase Agreement among Crispaire Corporation and Airxcel, Inc.
and Airxcel Holdings, Inc. dated October 17, 1997 (incorporated by
reference to Exhibit 1 to the Company's Annual Report on Form 10-K for
the year ended December, 31, 1999).
10.2 Stock Purchase Agreement among William S. Karol and Airxcel, Inc.
Dated March 17, 1998 (incorporated by reference to
Exhibit 2 to the Company's Annual Report on Form 10-K
for the year ended December, 31, 1999).
27.1 Financial data schedule.
Page 37 of 44
38
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,
2000 $ 490 $ 271 $ -- $ (446) $ 315
1999 478 398 -- (386) 490
1998 364 297 100 (283) 478
Allowance for Discounts
Year ended December 31,
2000 $ 103 $ 1,897 $ -- $(1,890) $ 110
1999 52 1,440 -- (1,389) 103
1998 52 1,225 -- (1,225) 52
- -----------
(1) Deduction for purposes for which reserve was created.
Page 38 of 44
39
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 5, 2001 /s/ Melvin L. Adams
- ------------- -------------------
Date Melvin L. Adams
President and Chief Executive Officer
March 5, 2001 /s/ Richard L. Schreck
- ------------- ----------------------
Date Richard L. Schreck
Secretary/Treasurer and Chief Financial
Officer
March 5, 2001 /s/ Lawrence Jones
- ------------- ------------------
Date Lawrence Jones
Director
March 5, 2001 /s/ Dean T. DuCray
- ------------- ------------------
Date Dean T. DuCray
Director
March 5, 2001 /s/ James A. Urry
- ------------- -----------------
Date James A. Urry
Director
March 5, 2001 /s/ Thomas F. McWilliams
- ------------- ------------------------
Date Thomas F. McWilliams
Director
March 5, 2001 /s/ George D. Wyers
- ------------- -------------------
Date George D. Wyers
Director
Page 39 of 44