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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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number 333-43335
AIRXCEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1071795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 North Saint Francis, Wichita, Kansas 67219
(Address of principal executive offices)
(Zip Code)
(316) 832-3400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES XX NO
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of
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Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
State the aggregate market value: The Company does not have any
publicly traded equity securities.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
1,000 shares of Common Stock as of December 31, 2001
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 2 of 41
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 (ECUs) and heat pumps for various
applications.
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.
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.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in the heating, ventilation, and air conditioning
equipment industry. Due to the similarities of the economic characteristics,
production processes, customers, distribution methods and regulatory environment
of the company's products, the Company is managed, operated and reported as one
segment. Financial information about the Company's products and customers is
presented in the consolidated financial statements.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company is a designer, manufacturer and marketer of air
conditioners, furnaces, water heaters, cooking appliances and low-voltage
compressor 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,
Page 3 of 41
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 nine
years. In addition, the Company supplies furnaces, water heaters and cooking
appliances to a large number of OEMs 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, Thor, 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 2001, as a percentage of Airxcel's net sales, RV
industry OEM sales represented 54%, and aftermarket sales represented 18%.
In addition to serving the RV industry, the Company designs,
manufactures and markets specialty wall mount air conditioners, packaged
terminal air conditioners with gas heat, 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, Miller Structures and
Fibrebond. 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, Cingular, Nextel, WorldCom and Verizon to specify its products for both
renovation and new construction. The telecommunication industry has recently
experienced a downturn in capital spending which could result in a decline in
the sales to this industry. Although a decline in this industry could have an
adverse effect on the financial position and results of operations of the
Marviar division, management believes the downturn would not have a material
adverse effect on the Company's overall financial position, results of
operations or liquidity. The Company 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 Charleston County South
Carolina. The Company has a leading position in each of its principal specialty
markets, through solid relationships with its customers
Page 4 of 41
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
2001, sales to the telecommunication shelter industry and school industry
represented 14% and 8%, 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, Thor
Industries, Winnebago Industries, Forest River and Jayco, its largest customers,
accounted for approximately 42% of the Company's net sales for 2001. There can
be no assurance that the company will maintain or improve these relationships or
that the Company will continue to supply these customers at current levels. The
loss of a significant portion of sales to any of these customers could have a
material adverse effect on the financial position, results of operations or
liquidity of the Company. In addition, many of the arrangements that the company
has with such customers are by purchase order and terminable at will at the
option of either party. A significant decrease or interruption in businesses of
any of the Company's significant customers could have a material adverse effect
on the financial position, results of operations or liquidity of the Company.
COMPETITIVE CONDITIONS
The recreation vehicle industry is highly competitive, both as to price
and quality of the
Page 5 of 41
product. As of December 31, 2001 there were six primary competitors to Airxcel
within the industry. The school and telecommunications air conditioning industry
is also highly competitive with four 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 nine 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 eighteen
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 importance of protecting telecommunication equipment through
the use of cooling units and ECUs and the Company's ability to satisfy customers
needs will generate an increased need for custom products which will continue to
strengthen relationships.
Strong Brand Name Recognition. The Company markets its RV air conditioners using
the well established and recognized "Coleman" brand name. The "Coleman" brand
name, established in the early part of the twentieth century, is well recognized
as a leading brand name for a variety of products related to the outdoor
recreation industry. Coleman brand air conditioners have been the leading RV air
conditioners since they were introduced into the market and are recognized by
customers to represent high quality and reliability. The "Suburban" brand name
was established in the late 1940's and is synonymous with providing quality LP
gas fired appliances to the RV industry including furnaces, water heaters and
cooking appliances. The Company also benefits from the strong brand name
recognition of its "Marvair" name in the telecommunication shelter market and
its "Scholar" and "GreenPac" names 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
Page 6 of 41
deliver its products utilizing lean manufacturing methods. In addition, Marvair
attained its ISO-9001 certification during 1998 and is currently certified for
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, 2001, the Company had 812 employees of which 301
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
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 $9.0 million. An appeal was filed from
the judgement and has been pending. The matter has
Page 7 of 41
now been settled and all related legal proceedings have been dismissed. Although
the terms of the settlement are confidential, previous accruals exceed any
payments made, and there will be no additional charges or accruals as a result
of the settlement. The settlement does not require any change in the product
offerings of the Company.
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 2001.
Page 8 of 41
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)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales $ 145,144 $ 177,896 $ 183,037 $ 157,425 $ 58,323
Cost of sales 117,867 145,369 144,862 123,581 44,732
--------- --------- --------- --------- ---------
Gross profit 27,277 32,527 38,175 33,844 13,591
Selling, general and administrative expenses 15,628 16,681 17,146 15,297 4,223
Operating income 13,998 12,141 10,733 16,077 8,729
Income (loss) from continuing operations before
income taxes 2,656 164 (1,685) 3,801 4,087
Net income (loss) 1,671 (169) (1,042) 2,251 (4,548)
OTHER DATA:
Gross margin percentage 18.8% 18.3% 20.9% 21.5% 23.3%
EBITDA (1) 19,244 18,072 16,297 20,671 9,850
EBITDA margin percentage 13.3% 10.2% 8.9% 13.1% 16.9%
Cash provided by operating activities 6,515 7,522 12,812 2,047 7,229
Cash used in investing activities (2,213) (4,980) (3,133) (30,346) (44,083)
Cash provided by (used in) financing activities (3,891) (2,495) (9,731) 18,785 46,319
Depreciation and amortization (2) 5,246 5,931 5,564 4,594 1,144
Capital Expenditures 2,314 3,125 2,638 1,852 716
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (3) $ 21,267 $ 18,554 $ 15,781 $ 23,368 $ 23,186
Total assets (4) 104,586 116,960 118,212 126,590 76,933
Total debt 104,522 107,338 106,910 119,506 90,355
Total stockholders' equity (deficiency) (17,724) (19,109) (18,940) (17,898) (25,009)
- ----------
(1) EBITDA represents earnings before interest expense, net, other
nonoperating expense, net, income tax expense, depreciation and
amortization. Other nonoperating (income) expenses were $39, $52, $2,
($92), and $23, for the years ended December 31, 2001, 2000, 1999,
1998, and 1997, 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 liabilities of the discontinued Faulkner manufacturing
division of $100, $228, $662, $1,290, and $466 as of December 31, 2001,
2000, 1999, 1998, and 1997, respectively.
(4) Total assets exclude net liabilities of the discontinued Faulkner
manufacturing division of $100, $228, $662, $1,290 and $466 as of
December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
Page 9 of 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of the financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. Continuously, the Company evaluates its
estimates which are based on various assumptions and historical experience.
Actual results may differ from these estimates depending upon a variety of
factors.
An allowance for doubtful accounts is maintained for uncollectible accounts
receivable. An analysis of the historical bad debts and customers' payment
trends are performed to evaluate the adequacy of the allowance for doubtful
accounts. The accounts receivable balance was $10.8 million, net of allowance
for doubtful accounts of $.3 million as of December 31, 2001. In the event the
Company's customers are unable to make required payments, revisions to the
allowance for doubtful accounts would be required.
The Company periodically assesses long-lived assets, including intangibles,
for impairment by comparing the carrying value to future undiscounted future
cash flows. If the review indicates that long-lived assets or goodwill is not
recoverable, the Company would recognize an impairment loss. In the event of a
recognition of the loss, the Company's profitability would be affected.
While the Company continually monitors the quality of the products it
produces, occasionally product failures occur. An estimated cost of product
warranty is recognized at the time the revenue is recognized. The Company
estimates the cost of its product warranty obligation based on historical
analysis of sales and warranty costs incurred. At December 31, 2001 the warranty
reserve balance was $1.9 million. Should actual product failure rate differ from
the Company's estimates, a revision to the warranty obligation would be
required.
The Company occasionally writes off obsolete inventory based upon
assumptions of future product requirements of its customers. If actual
requirements of its customers differ from the Company's estimates, additional
inventory write offs may be required.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Net Sales. Net sales decreased 18.4% from $177.9 million in 2000 to $145.1
million in 2001. Net sales decreased primarily due to reduced sales volume in
the RV and telecommunication industries which the Company believes is a result
of the adverse macroeconomic environment.
Gross Profit. Gross profit decreased 16.0% from $32.5 million (18% of net
sales) in 2000 to $27.3 million (19% of net sales) in 2001. The decrease was
principally due to the decreased sales volume.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses decreased 6.2% from $19.5 million (11% of net sales) in 2000 to $18.3
million (13% of net sales) in 2001 primarily due to cost reductions in response
to the decline in net sales.
Page 10 of 41
Accrued litigation (income) expense. Accrued litigation income was the
result of the settlement of the litigation described in Note 14 of the notes to
the consolidated financial statements.
EBITDA. EBITDA was $18.1 million in 2000 and $19.2 million in 2001. The
increase is primarily due to the accrued litigation income 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 $.2 million in 2000 to $2.7 million in
2001 primarily due to accrued litigation income as described above offset by
decreased gross profit.
Net income (loss). Net income (loss) increased from a net loss of $.2
million in 2000 to net income of $1.7 million in 2001 primarily as a result of
the conditions affecting the increased income from continuing operations as
described above.
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 (income) 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 14 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.
Page 11 of 41
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $6.5 million in net cash flow from operating
activities for the year ended December 31, 2001 compared to $7.5 million for
2000, primarily as a result of decreased accounts payable and accrued expenses
offset by increased net income and decreases in accounts receivable, inventory
and prepaid expenses and other assets.
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 $2.3 million, $3.1 million, and $2.6 million for
the years ended December 31, 2001, 2000, and 1999, respectively. The decrease in
2001 is primarily due to the completion of the process improvement project at
the Company's production facility which began in 2000.
Capital expenditures for 2002 are expected to be slightly above the 2001
level which includes the normal replacement of machinery and equipment and
tooling for new product and existing product improvements.
The Company's revolving credit facility with the bank, which matures June
29, 2005, is limited to the lessor of $31 million or 85% of net accounts
receivable and 60% of net inventories. The outstanding borrowing on the credit
facility at December 31, 2001 is $14.1 million. Interest on the revolving credit
facility is based on either the bank's base rate or Libor rate plus 2% (3.93%
combined rate at December 31, 2001).
In addition to the revolving credit facility, the Company is party to senior
subordinated notes which mature November 15, 2007. The $90.0 million notes bear
interest at 11%, payable semiannually in May and November.
Additionally, the Company has outstanding notes payable to individuals for a
land purchase and for a license agreement totaling $.3 million at December 31,
2001. These notes mature in 2002 and 2007.
The Company is also party to capital lease obligations for machinery and
equipment and furniture and fixtures, which expire in 2003. Total outstanding
capital lease obligations at December 31, 2001 are $.1 million.
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 future commitments
under the operating lease agreements is $1.7 million.
The Company is a wholly-owned subsidiary of Airxcel Holdings Corporation
("Holdings"). Holdings has no operating activities and no material assets other
than its investment in the Company. Accordingly, Holdings is dependent upon the
Company for any cash requirements. Holdings has 9,076,923 shares of $1 par value
Series A and Series B exchangeable preferred stock outstanding as of December
31, 2001. The Preferred stock which is exchangeable at the stockholders' option
for junior subordinated notes issued by Holdings, is subject to mandatory
Page 12 of 41
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% annually. Total proceeds plus accrued and unpaid dividends are $18.6
million as of December 31, 2001. The Company is not required to fund the
mandatory redemption of these preferred shares.
Holdings also issued $4.0 million of junior subordinated notes to the parent
company of a major stockholder in exchange for cash which are due in August
2006. These notes bear interest at 14% payable semiannually in the form of
additional junior subordinated notes or cash at the election of Holdings. Such
notes, and accrued interest totaled $8.4 million as of December 31, 2001. As
part of the Marvair acquisition, Holdings issued $5.3 million of junior
subordinated notes (the "PIK Notes") to the seller. 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, and accrued interest, totaled $7.4 million as of December 31, 2001.
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.
All of the obligations of Holdings described above are uncollateralized and
are not guaranteed by the Company, however, the Company is currently exploring
various options to satisfy these obligations.
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 is in
compliance with these ratios at December 31, 2001 and 2000. The Company
anticipates that they will continue to comply in 2002 with the financial
covenants. Management's current business plan estimates working capital levels
and operating profitability. The achievement of this plan is necessary for
compliance with various financial covenants during 2002. The possibility exists
that certain financial covenants will not be met if business conditions are
other than as anticipated. In such event, the Company would need an amendment or
waiver of such financial covenants; however, there can be no assurance that such
amendments or waivers will be obtained.
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. However, this is dependent
upon the future performance of the Company and its subsidiaries which, in turn,
is subject to general economic conditions and to financial, business and other
factors, including factors beyond the Company's control.
The Company did not have any other relationships with unconsolidated
entities or financial partnerships, such entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As such, the Company is not
materially exposed
Page 13 of 41
to any financing, liquidity, market or credit risk that could arise if the
Company were engaged in such relationships.
On January 9, 2002 the company entered into a letter of credit totaling $665
which obligates the Company to make payment in the event of a default on an
agreement with an insurance company to pay claims incurred. Management does not
expect any material losses to result from this off-balance sheet instrument
because performance is not expected to be required, and therefore, is of the
opinion that the fair value of this instrument is zero.
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 involved the consolidation of two manufacturing facilities and the
discontinuance of a product line. A restructuring charge relating to severance
and employee benefit costs and costs relating to the closure of the facility was
recorded at that time. At June 30, 2001, the restructure was complete and no
restructuring charges remained in accrued liabilities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations". SFAS No. 141 addresses the accounting and reporting for business
combinations and requires that all business combinations be accounted for using
one method, the purchase method. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001, and contains certain transition
provisions, effective for the Company beginning January 1, 2002, that apply to
purchase method business combinations for which the acquisition date was before
July 1, 2001. Adoption of SFAS No. 141 is not expected to have a material impact
on the Company's consolidated financial position, results of operations or cash
flows.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses the financial accounting and reporting for
goodwill and other intangible assets acquired in a business combination after
they have been initially recognized in the financial statements, eliminates
amortization of goodwill, and requires that goodwill be tested for impairment at
least annually. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. The Company will adopt SFAS No. 142 on January 1, 2002. Under
SFAS No. 142, goodwill will be tested annually for impairment using a two-step
process. The first step is to identify a potential impairment in which the
Company has six months from the date of adoption to complete this step. The
second step measures the amount of the impairment loss (measured as of the
beginning of the year of adoption), and must be completed by the end of the
Company's fiscal year. Any impairment loss resulting from the transitional
impairment tests will be reflected as the cumulative effect of a change in
accounting principle. The Company expects to record an impairment loss and has
not yet determined the amount of the impairment as of the date of adoption. The
Company expects to complete the impairment tests during the first quarter 2002.
In connection with the adoption of SFAS No. 142, the Company expects to
reclassify $1.4 million of its intangible assets to goodwill. The Company
expects that it will no longer record $.9 million of amortization relating to
its existing goodwill. Goodwill, net of amortization, is $22.1 million at
December 31, 2001.
Page 14 of 41
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses the recognition and
remeasurement of obligations associated with the retirement of a tangible
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. SFAS No. 143 will become effective for the Company in fiscal
2003. Adoption of SFAS No. 143 is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 applies to all long-lived assets
(excluding goodwill) and discontinued operations and it develops one accounting
model for long-lived assets that are to be disposed of by sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. SFAS No. 144 will
become effective for the Company January 1, 2002. The Company is currently
reviewing SFAS No. 144 to determine its impact, if any, on the Company's future
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 6.7% per annum, a 1% increase in market interest rates would increase
interest expense and decrease earnings before income taxes by approximately
$141,000 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
Page 15 of 41
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 16 of 41
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Airxcel, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a)(1) on page 38 present fairly, in all material
respects, the financial position of Airxcel, Inc. and its subsidiaries at
December 31, 2001 and 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, 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 38 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 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 13, 2002
Page 17 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 583 $ 172
Accounts receivable, net of allowances for doubtful
accounts of $295 and $315, respectively 10,818 15,320
Inventory 22,161 26,524
Prepaid expenses and other assets 172 129
Income taxes receivable 319 1,205
Deferred income taxes 1,758 1,777
--------- ---------
Total current assets 35,811 45,127
--------- ---------
Property, plant and equipment, net 17,668 17,980
Computer software, net 363 498
Intangible assets, net 48,355 50,550
Loan financing costs, net 2,389 2,805
--------- ---------
Total assets $ 104,586 $ 116,960
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 147 $ 142
Cash overdraft -- 402
Accounts payable 7,507 9,926
Warranty reserve 1,851 2,047
Accrued vacation expense 899 864
Accrued interest 1,241 1,405
Other accrued expenses 2,799 11,559
Liabilities of discontinued operations 100 228
--------- ---------
Total current liabilities 14,544 26,573
Long-term debt, less current portion 104,375 107,196
Deferred income taxes 3,391 1,791
--------- ---------
Total liabilities 122,310 135,560
--------- ---------
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 27,322 26,946
Accumulated deficit (45,012) (46,056)
Accumulated other comprehensive loss (35) --
--------- ---------
Total stockholder's equity (deficiency) (17,724) (19,109)
--------- ---------
Total liabilities and stockholder's equity (deficiency) $ 104,586 $ 116,960
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 18 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended
----------------------------------------------
December 31, December 31, December 31,
------------ ------------ ------------
2001 2000 1999
--------- --------- ---------
Net sales $ 145,144 $ 177,896 $ 183,037
Cost of goods sold 117,867 145,369 144,862
--------- --------- ---------
Gross profit 27,277 32,527 38,175
--------- --------- ---------
Operating expenses:
Selling, general and administrative 15,628 16,681 17,146
Amortization of intangible assets and computer
software 2,700 2,805 2,696
Accrued litigation (income) expense (5,049) 900 7,600
--------- --------- ---------
Total operating expenses 13,279 20,386 27,442
--------- --------- ---------
Income from operations 13,998 12,141 10,733
Interest expense 11,436 11,944 12,416
Minority interest (133) (19) --
Other expense, net 39 52 2
--------- --------- ---------
Income (loss) from continuing operations before
income tax expense and extraordinary item 2,656 164 (1,685)
Income tax expense (benefit) 1,064 126 (380)
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary item 1,592 38 (1,305)
Discontinued operations:
Recovery on disposal of Faulkner Manufacturing
less applicable income tax expense of
$49, $174, and $165, respectively (79) (277) (263)
--------- --------- ---------
Income (loss) before extraordinary item 1,671 315 (1,042)
Extraordinary losses on early extinguishments of
debt, less applicable income tax benefit of
$0, $304 and $0, respectively -- 484 --
--------- --------- ---------
Net income (loss) 1,671 (169) (1,042)
Other comprehensive loss:
Minimum pension liability, net of tax (35) -- --
--------- --------- ---------
Comprehensive income (loss) $ 1,636 $ (169) $ (1,042)
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 19 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIENCY)
(in thousands, except shares)
Accumulated
Common Stock Additional Other
------------------------ Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total Equity
------ ------ ------- ------- ---- ------------
Balances, January 1, 1999 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)
Relinquishment of minority
interest -- -- 376 -- -- 376
Net income -- -- -- 1,671 -- 1,671
Dividend to parent -- -- -- (627) -- (627)
Minimum pension liability, net
of tax -- -- -- -- (35) (35)
-------- -------- -------- -------- -------- --------
Balances, December 31, 2001 1,000 $ 1 $ 27,322 $(45,012) $ (35) $(17,724)
======== ======== ======== ======== ======== ========
Page 20 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
------------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
----------- ----------- ------------
Cash flows from (to) operating activities:
Net income (loss) $ 1,671 $ (169) $ (1,042)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 2,546 3,126 2,868
Amortization of intangible assets and computer
software 2,700 2,805 2,696
Amortization of financing costs 432 512 665
Provision for bad debts (20) 271 398
Recovery on disposal of discontinued operations (128) (434) (428)
Deferred income taxes 1,619 (652) (2,026)
(Gain) Loss on sale of fixed assets (20) 31 21
Minority interest in earnings of subsidiaries (133) (19) --
Extraordinary losses on early extinguishments of
debt -- 489 --
Changes in assets and liabilities:
Accounts receivable 3,926 76 3,729
Inventory 4,036 (373) 1,882
Prepaid expenses and other assets 1,456 (347) (916)
Accounts payable (2,426) 2,385 (3,240)
Accrued expenses (9,144) (179) 8,205
--------- --------- ---------
Net cash provided by operating activities 6,515 7,522 12,812
--------- --------- ---------
Cash flows from (to) investing activities:
Proceeds from sale of fixed assets 101 3 37
Capital expenditures (2,314) (3,125) (2,638)
Computer software and intangible expenditures -- (485) (532)
Acquisitions, net of cash acquired -- (1,373) --
--------- --------- ---------
Net cash used in investing activities (2,213) (4,980) (3,133)
--------- --------- ---------
Cash flows from (to) financing activities:
Cash overdraft (419) (2,463) 2,865
Proceeds from long-term obligations 149,152 193,391 176,624
Principal payments on long-term debt (151,975) (193,071) (189,220)
Acquisition of patent (6) -- --
Financing costs incurred (16) (352) --
Dividend to parent (627) -- --
--------- --------- ---------
Net cash used in financing activities (3,891) (2,495) (9,731)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 411 47 (52)
Cash and cash equivalents, beginning of period 172 125 177
--------- --------- ---------
Cash and cash equivalents, end of period $ 583 $ 172 $ 125
========= ========= =========
Page 21 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended
---------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------- ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid (received) during
the year for:
Interest $ 11,059 $ 11,237 $ 11,896
Income taxes, net (1,711) 919 1,972
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 22 of 41
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 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 8) 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, compressor
refrigeration units for the recreation vehicle, marine and ambulance
manufacturing industries. 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
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, 2001, 2000, and 1999. 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% annually. Total proceeds plus
accrued and unpaid dividends were $18,618, $16,232, and $14,152 as of December
31, 2001, 2000 and 1999, respectively. All proceeds generated from the sale of
such common and preferred shares have been contributed to the Company. However,
the Company is not required to fund the mandatory redemption of these preferred
shares. During 1996, Holdings also issued $4,015 of junior subordinated notes to
the parent company of a major stockholder in exchange for cash. All proceeds
from the issuance of these notes have been contributed to the Company. These
notes, which are due in August, 2006, bear interest at 14% payable semiannually
in the form of additional junior subordinated notes or cash at the election of
Holdings. Such notes,
Page 23 of 41
plus accrued interest totaled $8,360, $7,286, and $6,350 as of December 31,
2001, 2000 and 1999, 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 $7,439, $7,272 and $6,694 as of December 31, 2001, 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.
In August 1996, 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. As a part of the Recapitalization, new debt was issued
including a senior subordinate note. This note was issued with detachable stock
warrants to purchase 65,882 shares of Class B Common Stock of Holdings at $.02
per share at any time on or before August 22, 2006. The exercise price is
subject to adjustment from time to time in order to prevent dilution of the
rights granted under the warrants. The holders of these warrants are entitled to
receive dividend payments as if the warrants were exercised immediately prior to
the date of record for such dividends. The estimated fair value of the warrants
at the date of issuance has been recognized as a reduction of the note payable
(as debt discount) in the amount of $218 with the offset to additional paid-in
capital. On April 3, 1998 new warrants were issued for 229,662.50 shares of
Class B Common Stock of Holdings. The new warrants are entitled to the same
rights as the existing warrants. Proceeds of $765 were contributed by Holdings
to the Company.
The total proceeds from the debt were used to pay financing costs
relating to the recapitalization and to repay existing debt which was accounted
for as an early extinguishment of debt. The remaining proceeds of the new debt
were distributed as part of a dividend to Holdings that was used by Holdings to
retire all remaining shares of Common Stock outstanding at that time.
During October 1997, the Company's board of directors adopted a formal
plan to dispose of its awning business (see Note 13).
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.
Page 24 of 41
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, 2001, 2000 and 1999 was
$331, $197 and $66 respectively. Amortization for the years ended December 31,
2001, 2000 and 1999 was $135, $131, and $32, respectively.
h. Long-lived Assets: The Company periodically assesses long-lived
assets, including intangibles for impairment by comparing the carrying value to
future undiscounted future cash flows. To the extent that there is impairment,
analysis is performed based on several criteria including revenue trends and
other operating factors to determine the impairment amount. In addition, a
determination is made by management to ascertain whether goodwill has been
impaired. If the review indicates that goodwill is not recoverable, the company
would recognize an impairment loss.
i. 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 2001 2000
--------- ------------ ------------
Non-compete agreement 3-5 years $ 1,100 $ 1,100
Trademarks and contract 1-50 years 19,811 19,811
Patents 5-7 years 3,654 3,647
Assembled work force 10-20 years 2,000 2,000
Customer base 20 years 7,500 7,500
License agreements 10 years 525 525
Goodwill 10-40 years 24,565 24,201
------------ ------------
59,155 58,784
Less accumulated amortization 10,800 8,234
------------ ------------
$ 48,355 $ 50,550
============ ============
Page 25 of 41
j. Loan Financing Costs: Loan financing costs are amortized using the
effective yield method over the contracted terms of the related debt.
k. 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.
l. 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 $361, $374, and $450 in 2001, 2000, and
1999, respectively.
m. 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.
n. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 2001, 2000 and 1999, excluding the $90 million of
senior subordinated notes, approximate fair market value. The fair value of the
Company's senior subordinated notes is $48.6 million at December 31, 2001 based
on the quoted market price for the same issue or similar issues.
o. Recently Issued Accounting Standards: In June 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations". SFAS No. 141 addresses the
accounting and reporting for business combinations and requires that all
business combinations be accounted for using one method, the purchase method.
SFAS No. 141 is effective for all business combinations initiated after June 30,
2001, and contains certain transition provisions, effective for the Company
beginning January 1, 2002, that apply to purchase method business combinations
for which the acquisition date was before July 1, 2001. Adoption of SFAS No. 141
is not expected to have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses the financial accounting and
reporting for goodwill and other intangible assets acquired in a business
combination after they have been initially recognized in the financial
statements, eliminates amortization of goodwill, and requires that goodwill be
tested for impairment at least annually. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. The Company will adopt SFAS No. 142 on
January1, 2002. Under SFAS No. 142, goodwill will be tested annually for
impairment using a two-step process. The first step is to identify a potential
impairment in which the Company has six months from the date of adoption to
complete this step. The second step measures the amount of the impairment loss
(measured as of the beginning of the year of adoption), and must be completed by
the end of the Company's fiscal year. Any impairment loss resulting from the
transitional impairment tests will be reflected as the cumulative effect of a
change in accounting principle. The Company expects to record an impairment loss
and has not yet determined the amount of the impairment as of the date of
adoption. The Company expects to complete the impairment tests during the first
quarter 2002.
Page 26 of 41
In connection with the adoption of SFAS No. 142, the Company expects to
reclassify $1.4 million of its intangible assets to goodwill. The Company
expects that it will no longer record $.9 million of amortization relating to
its existing goodwill. Goodwill, net of amortization, is $22.1 million at
December 31, 2001.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses the recognition and
remeasurement of obligations associated with the retirement of a tangible
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. SFAS No. 143 will become effective for the Company in fiscal
2003. Adoption of SFAS No. 143 is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 applies to all
long-lived assets (excluding goodwill) and discontinued operations and it
develops one accounting model for long-lived assets that are to be disposed of
by sale. SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. SFAS No. 144 will become effective for the Company January 1, 2002. The
Company is currently reviewing SFAS No. 144 to determine its impact, if any, on
the Company's future consolidated financial position, results of operations or
cash flows.
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 Company does not hold or issue derivative financial instruments
for trading purposes.
q. Reclassification: Certain amounts in the 2000 and 1999 financial
statements have been reclassified to conform with the 2001 presentation.
3. SUMMARY BALANCE SHEET DATA:
Inventory consists of the following:
December 31, December 31,
2001 2000
----------- -----------
Raw materials $ 9,944 $ 12,323
Work-in-process 1,896 2,343
Finished goods 10,321 11,858
----------- -----------
$ 22,161 $ 26,524
=========== ===========
Property, plant and equipment consist of the following:
December 31, December 31,
2001 2000
------------ -----------
Land and land improvements $ 1,235 $ 1,235
Buildings and building improvements 7,825 7,486
Machinery and equipment 19,960 18,337
Furniture and fixtures 1,424 1,559
Construction in process 1,037 881
------------ -----------
31,481 29,498
Less accumulated depreciation (13,813) (11,518)
------------ -----------
Net $ 17,668 $ 17,980
============ ===========
Page 27 of 41
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 1).
Long-term debt consists of the following:
December 31, December 31,
2001 2000
----------- ------------
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%, 3.93% at
December 31, 2001, payable monthly. $ 14,125 $ 16,803
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 232 267
Note payable to individual for purchase of license agreement,
due in monthly principal and interest payments of $2
through May 1, 2002. 21 37
Capital leases 144 231
---------- -----------
104,522 107,338
Current portion of long term debt (147) (142)
---------- -----------
$ 104,375 $ 107,196
========== ===========
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 is in compliance
with these ratios at December 31, 2001 and 2000. The Company anticipates that
they will continue to comply in 2002 with the financial covenants. Management's
current business plan estimates working capital levels and operating
profitability. The achievement of this plan is necessary for compliance with
various financial covenants during 2002. The possibility exists that certain
financial covenants will not be met if business conditions are other than as
anticipated. In such event, the Company would need an amendment or waiver of
such financial covenants; however, there can be no assurance that such
amendments or waivers will be obtained.
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
Page 28 of 41
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.
The ability of the Company to meet its debt service and working capital
obligations and capital expenditure requirement is dependent upon the future
performance of the Company and its subsidiaries which, in turn, is subject to
general economic conditions and to financial, business and other factors,
including factors beyond the Company's control.
Maturities of long-term debt, including minimum required reductions in
the revolving line of credit commitments based on balances outstanding at
December 31, 2001 for each of the five succeeding years are as follows:
Minimum Net Present Long-term
Lease Payment Interest Value Debt Total
------------- -------- ----------- ---------- --------
2002 101 9 92 55 147
2003 54 2 52 40 92
2004 -- -- -- 43 43
2005 -- -- -- 14,172 14,172
2006 -- -- -- 50 50
Thereafter -- -- -- 90,018 90,018
------------- -------- ----------- ---------- --------
$ 155 $ 11 $ 144 $ 104,378 $104,522
============= ======== =========== ========== ========
Property, plant and equipment at year-end include the following amounts
for capitalized leases:
December 31,
2001
------------
Machinery and equipment $ 200
Furniture and fixtures 145
-----------
$ 345
Less accumulated depreciation (194)
-----------
Net property, plant and equipment $ 151
==========
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
Page 29 of 41
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. The Company has not recorded any compensation expense for the
years ended December 31, 2001, 2000, and 1999.
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,
2001 2000
------- --------
Provision for discontinued operations $ 38 $ 88
Accrued reserves and liabilities 3,074 4,972
Depreciation (2,223) (2,204)
Intangibles (2,738) (2,881)
State income tax net operating loss carry forwards,
expiring beginning 2010 216 11
------- -------
(1,633) (14)
Less current deferred income tax 1,758 1,777
------- -------
Total noncurrent deferred income tax $(3,391) $(1,791)
======= =======
The components of income tax (benefit) expense before discontinued
operations and extraordinary items are as follows:
December 31, December 31, December 31,
2001 2000 1999
------- ------- -------
Current $ (505) $ 831 $ 1,888
Deferred 1,569 (705) (2,268)
------- ------- -------
Total income tax (benefit) expense before
discontinued operations and
extraordinary item $ 1,064 $ 126 $ (380)
======= ======= =======
Total income tax (benefit) 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,
2001 2000 1999
------- ------- -------
Income tax (benefit) expense before discontinued
operations and extraordinary item computed by
applying the federal statutory rate $ 930 $ 50 $ (590)
Adjustment to prior year expense -- -- 95
Minority interest (46) 12 --
State income taxes, net of federal income tax
benefit 94 6 (77)
Goodwill 167 149 138
Other (81) (91) 54
------- ------- -------
Total income tax (benefit) expense before
discontinued operations and
extraordinary item $ 1,064 $ 126 $ (380)
======= ======= =======
Page 30 of 41
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.
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 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(i)). Due to the immaterial size of the
acquisition, presentation of pro forma operating results are not required.
9. 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 $823, $945 and $784 for the years ended December 31, 2001,
2000 and 1999, respectively.
Commitments for minimum lease payments under noncancellable leases as
of December 31, 2001 are as follows:
Operating
Leases
---------
2002 $ 557
2003 444
2004 261
2005 229
2006 210
---------
$ 1,701
As part of the Marvair acquisition, the Company entered into certain
management and employment agreements. Compensation expense related to these
agreements was $0, $245, and $379 for the years ended December 31, 2001, 2000
and 1999, respectively.
10. 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,
2001, 2000 and 1999 totaled $346, $379 and $315, respectively.
Page 31 of 41
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
measurement dates are September 30, 2001 and 2000.
In accordance with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" (SFAS No. 87) an additional minimum pension
liability for pension plans with accumulated benefits in excess of plan assets
must be recognized. At December 31, 2001, a minimum pension liability adjustment
of $35 (net of income tax benefit of $22) is included in the accompanying
Consolidated Balance Sheets.
December 31, 2001 December 31, 2000
-----------------------------------------------------
Plan 1 Plan 2 Plan 1 Plan 2
------- ------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at 9-30 $ 2,854 $ 1,916 $ 2,579 $ 1,776
Service cost 139 178 143 170
Interest cost 220 146 193 131
Benefits paid (74) (85) (37) (119)
Actuarial gain (loss) (305) (13) 91 27
Change in assumptions 105 76 (115) (69)
------- ------- ------- -------
Benefit obligation at 9-30 $ 2,939 $ 2,218 $ 2,854 $ 1,916
------- ------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at 9-30 $ 2,776 $ 2,043 $ 2,394 $ 1,758
Employer contributions 16 94 57 78
Employee contributions 35 63 33 54
Actual return on plan assets (339) (266) 329 272
Benefits paid (74) (85) (37) (119)
------- ------- ------- -------
Fair value of plan assets at 9-30 $ 2,414 $ 1,849 $ 2,776 $ 2,043
------- ------- ------- -------
Unfunded (funded) status $ 525 $ 369 $ 78 $ (126)
Unrecognized net actuarial gain (loss) (72) (284) 306 216
Employer contribution after
measurement date (37) -- -- --
Adjustment to recognize minimum
liability -- 57 -- --
------- ------- ------- -------
Accrued benefit cost $ 416 $ 142 $ 384 $ 90
======= ======= ======= =======
Weighted-average assumptions as of September 30:
Discount rate 7.50% 7.50% 7.75% 7.75%
Expected return on plan assets 8.50% 8.50% 8.50% 8.50%
Rate of compensation increase 3.00% 3.00% 3.00% 3.00%
Page 32 of 41
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost 139 178 143 169
Interest cost 220 146 193 131
Expected return on plan assets (237) (179) (208) (154)
Amortization of net gain (2) (1) -- --
Employee contributions (35) (54) (37) (50)
----- ----- ----- -----
Net periodic benefit cost $ 85 $ 90 $ 91 $ 96
===== ===== ===== =====
11. SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
The Company's ten largest customers accounted for approximately 50%,
50% and 49% of net sales for the years ended December 31, 2001, 2000 and 1999,
respectively, and approximately 42%, 56% and 50% of accounts receivable at
December 31, 2001, 2000 and 1999, 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 2001 2000 1999
------------ ----------- -----------
A. $ 14,400 $ 19,604 $ 24,514
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 2001 and 2000 that exceeded
FDIC insurance limits by $34 and $0, respectively.
12. 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 involved the consolidation of two manufacturing facilities and the
discontinuance of a product line. A restructuring charge relating to severance
and employee benefit costs and costs relating to the closure of the facility was
recorded at that time. At June 30, 2001, the restructure was complete and no
restructuring charges remained in accrued liabilities.
13. DISCONTINUED OPERATIONS:
During September 1997, the Company adopted a plan to discontinue its
Faulkner manufacturing division. A significant amount of the assets of the
division were liquidated and the liabilities were settled during 2001, 2000 and
1999. Accordingly, Faulkner is reported as a discontinued operation for the
years ended December 31, 2001, 2000 and 1999.
Net sales from Faulkner were $0 for the years ended December 31, 2001,
2000 and 1999.
Liabilities of the discontinued operations are $100, $228 and $662 at
December 31, 2001, 2000 and 1999, respectively, which primarily consist of
remaining warranty obligations.
The recoveries on the disposal of Faulkner are $128, $451, and $428 at
December 31, 2001, 2000 and 1999 respectively.
Page 33 of 41
14. 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. An appeal was filed from the
judgement and has been pending. The matter has now been settled and all related
legal proceedings have been dismissed. Although the terms of the settlement are
confidential, previous accruals exceed any payments made, and there will be no
additional charges or accruals as a result of the settlement. The settlement
does not require any change in the product offerings of the Company.
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.
15. 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 period ended
December 31, 1999, the floating Libor rate did not exceed the stated interest
rate.
16. SUBSEQUENT EVENT:
On January 9, 2002 the company entered into a letter of credit totaling
$665 which obligates the Company to make payment in the event of a default on an
agreement with an insurance company to pay claims incurred. Management does not
expect any material losses to result from this off-balance sheet instrument
because performance is not expected to be required, and therefore, is of the
opinion that the fair value of this instrument is zero.
Page 34 of 41
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 56 President and Chief Executive Officer, Director
Gregory G. Guinn 53 President -- RV Products
Richard L. Schreck 49 Chief Financial Officer, Secretary, Treasurer
Lonnie L. Snook 66 Vice President -- RV Manufacturing and
Engineering
George D. Wyers 69 Retired, former President -- Marvair, Director
Dean T. DuCray 61 Director
Lawrence Jones 70 Director
James A. Urry 47 Director
Melvin L. Adams. Mr. Adams has been a Director, the Chief Executive
Officer and President of Airxcel since 1991. From 1989 until 1991, he served as
Vice President of The Coleman Company. From 1979 through 1984, he served as
General Manager of The Coleman Company's Camping Trailer Division. In 1984, he
was promoted to Corporate Vice President & General Manager of Coleman's RV
Group. In 1991, he and three officers of RVP led the buy out of Coleman RV
Products with Berkshire Partners from MacAndrews and Forbes.
Gregory G. Guinn. Mr. Guinn was promoted to President of the RV
Products Division of Airxcel, Inc. in 1999. From 1989 to 1998, he served as Vice
President of Sales and Marketing of RVP. Prior to that, Mr. Guinn held various
positions with The Coleman Company, including National Sales Manager and
Marketing Manager of RV Products and Corporate Vice President and General
Manager of RV Products. Mr. Guinn handles all of RVP's major accounts and its
internal sales force.
Richard L. Schreck. Mr. Schreck has been the Chief Financial Officer,
Secretary and Treasurer of Airxcel since 1991. Beginning in 1981, Mr. Schreck
held various positions at The Coleman Company, including Corporate Vice
president of Operational Finance, RV Group Controller and
Controller/Administrative Manager for RV Products. Mr. Schreck is responsible
for all financial and MIS functions at Airxcel.
Lonnie L. Snook. Mr. Snook has been Vice President-Manufacturing and
Engineering of RVP since 1989. Prior to that, Mr. Snook held various positions
at The Coleman Company, including Industrial Engineer, Manager of Industrial
Engineering and Production Superintendent and Factory Manager of RV Products.
Page 35 of 41
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 to 1997,
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.
James A. Urry. Mr. Urry has been a director of the Company since 1996.
Mr. Urry has been with Citibank, N.A. since 1981, serving as a vice president
since 1986. He has been a vice president of CVC since 1989. He is a director of
AmeriSource Health Corporation, CLARK Material Handling Corporation, CORT
Business Services Corporation, Hancor Holding Corporation, International Knife
and Saw Corporation, Palomar Technologies, Inc., York International Corporation
and Brunner Mondple.
COMPENSATION OF DIRECTORS
Directors of the Company who are officers, employees of the Company or
its affiliates are presently not expected to receive compensation for their
services as directors. Directors of the Company who are not officers or
employees of the Company or any of its affiliates receive $2,000 per Board
meeting attended. In addition, directors of the Company will be entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the board of directors or
committees thereof.
Page 36 of 41
ITEM 11. 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, 2001.
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 2001 $ 250,008 $ 35,551 -- -- $ 15,638
President and Chief Executive Officer 2000 250,008 87,280 -- -- 15,845
1999 244,174 50,000 -- -- 14,181
Gregory G. Guinn 2001 165,000 12,343 -- -- 11,239
President - RVP 2000 162,500 109,965 -- -- 11,174
1999 145,834 95,700 -- -- 8,818
Richard L. Schreck 2001 165,000 23,107 -- -- 10,824
Chief Financial Officer, Secretary and 2000 162,500 52,158 -- -- 10,574
Treasurer 1999 145,834 30,000 -- -- 9,773
Lonnie L. Snook 2001 140,004 13,810 -- -- 11,121
Vice President -- RVP Manufacturing 2000 140,004 80,614 -- -- 11,819
and Engineering 1999 137,504 87,696 -- -- 9,602
George D. Wyers 2001 -- -- -- -- --
Retired, former President - Marvair 2000 183,084 12,057 -- -- 1,854
division 1999 203,859 9,947 -- -- 1,880
- -----------
(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. 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.
Page 37 of 41
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) 1,196,573.55 65.30(2) 40.66%
399 Park Avenue
New York, New York 10043
Melvin L. Adams 141,637.30 7.73 13.29%
George D. Wyers 138,331.53 7.55 12.98%
Gregory G. Guinn 76,348.75 4.17 7.16%
Richard L. Schreck 76,348.75 4.17 7.16%
Lonnie L. Snook 61,533.75 3.36 5.77%
All directors and executive officers as a group
(9 persons, including those named above) 512,324.24 27.96 47.38%
- -----------
(1) Includes shares held by employees and affiliates of CVC.
(2) Includes shares of (i) voting Class A Common Stock representing 40.66% of
outstanding voting Class A Common Stock, (ii) non-voting Class B Common Stock
and (iii) stock warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Page 38 of 41
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 17
Consolidated Balance Sheets - December 31, 2001 and 2000 18
Consolidated Statements of Operations - Years ended
December 31, 2001, 2000, and 1999 19
Consolidated Statements of Changes in Stockholder's Equity (Deficiency)
Years ended December 31, 2001, 2000, and 1999 20
Consolidated Statements of Cash Flows - Years ended
December 31, 2001, 2000, and 1999 21
Notes to Consolidated Financial Statements 23
(a)(2) The following financial statement schedules are included in Item 14, Part
IV of this report.
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted either because of the
absence of the conditions under which they are required or because the required
information is contained in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
Exhibit Number Description
-------------- ----------------------------------------------------------------------
1. Asset Purchase Agreement among Crispaire Corporation and Airxcel, Inc.
and Airxcel Holdings, Inc. dated October 17, 1997.
2. Stock Purchase Agreement among William S. Karol and Airxcel, Inc.
Dated March 17, 1998.
Page 39 of 41
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Additions Balance at
Beginning Charged to (1) End of
Description of Year Expense Deductions Year
Allowance for Doubtful Accounts
Year ended December 31,
2001 $ 315 $ (20) $ -- $ 295
2000 490 271 (446) 315
1999 478 398 (386) 490
Allowance for Discounts
Year ended December 31,
2001 $ 110 $ 1,714 $ (1,714) $ 110
2000 103 1,897 (1,890) 110
1999 52 1,440 (1,389) 103
- ----------
(1) Deduction for purposes for which reserve was created.
Page 40 of 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Airxcel, Inc.
March 13, 2002 /s/ Melvin L. Adams
- ------------------------------- ---------------------------------------
Date Melvin L. Adams
President and Chief Executive Officer
March 13, 2002 /s/ Richard L. Schreck
- ------------------------------- ---------------------------------------
Date Richard L. Schreck
Secretary/Treasurer and Chief Financial
Officer
March 13, 2002 /s/ Lawrence Jones
- ------------------------------- ---------------------------------------
Date Lawrence Jones
Director
March 13, 2002 /s/ Dean T. DuCray
- ------------------------------- ---------------------------------------
Date Dean T. DuCray
Director
March 13, 2002 /s/ James A. Urry
- ------------------------------- ---------------------------------------
Date James A. Urry
Director
March 13, 2002 /s/ George D. Wyers
- ------------------------------- ---------------------------------------
Date George D. Wyers
Director
Page 41 of 41