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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(see note below)
(Mark one)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
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 /X/ NO /_/
Note: This information is provided solely to comply with the obligation
contained in the indenture agreement governing the Company's Senior Subordinated
Notes.
Page 1 of 48
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES /_/ NO /X/
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, 2002
DOCUMENTS INCORPORATED BY REFERENCE
The Airxcel, Inc. Form S-4 Registration Statement Under the Securities Act of
1933, portions of which are incorporated by reference into Part IV.
Page 2 of 48
PART I
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, Winnebago and Jayco, who have relied on the
Company for substantially all of their RV air
Page 3 of 48
conditioner needs for each of the past ten 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
entered the cooking appliance field in 1997. 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
2002, as a percentage of Airxcel's net sales, RV industry OEM sales represented
62%, and aftermarket sales represented 17%.
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 school districts and bid and spec mechanical
contractors, telecommunication shelter and cabinet manufacturers,
telecommunication service providers and their upgrade 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 one of the largest providers of heating, ventilating, air
conditioning, and dehumidifying equipment for the individually conditioned
classroom market. The Company believes that it will continue to benefit from an
increased need for cooling units in the nation's schools due to building codes
that mandate fresh air requirements in classrooms, new legislation that requires
classroom occupancy reduction, 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 also believes that it is well-positioned to benefit
from a recovery 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 Old English, 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, and Verizon to specify its products for both
renovation and new construction. The Company has a leading position in each of
its principal specialty markets, through solid relationships with its customers
who generally require tailored products and a high level of customer service.
The ability to customize products without interruption of its larger production
lines allows the Company to work closely with customers to develop and produce
equipment that meets their specific needs quickly and efficiently. In fiscal
2002, sales to the telecommunication shelter industry and school industry
represented 18% of Airxcel's total net sales, respectively.
Page 4 of 48
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, Thor Industries, Coast
Distribution, Forest River, Winnebago Industries, and Jayco, its largest
customers, accounted for approximately 49% of the Company's net sales for 2002.
There can be no assurance that the company will maintain or improve these
relationships or that the Company will continue to supply these customers at
current levels. The loss of a significant portion of sales to any of these
customers could have a material adverse effect on the financial position,
results of operations or liquidity of the Company. In addition, many of the
arrangements that the company has with such customers are by purchase order and
terminable at will at the option of either party. A significant decrease or
interruption in businesses of any of the Company's significant customers could
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
COMPETITIVE CONDITIONS
The recreation vehicle industry is highly competitive, both as to price and
quality of the product. As of December 31, 2002 there were four primary
competitors to Airxcel within the industry. The school and telecommunications
air conditioning industry is also highly competitive with five major
competitors. Although the Company competes with a number of established
companies that have greater financial, technological and marketing resources,
Airxcel believes it has a competitive advantage due to the following:
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 one of
Page 5 of 48
the largest providers of heating, ventilating, air conditioning, and
dehumidifying equipment for the individually conditioned classroom market.
Additionally, the company believes it is the largest provider of environmental
control equipment of the U.S. telecommunications market. 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 and
Jayco substantially all of their air conditioner needs for each of the past ten
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
school and telecommunications customers, in some cases for as long as nineteen
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.
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 deliver its products utilizing lean
manufacturing methods. In addition, Marvair attained its ISO-9001 certification
during 1998. In early 2002 Marvair achieved the most current certification of
ISO 9000-2000.
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
Page 6 of 48
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, 2002, the Company had 923 employees of which 334 were
represented by a bargaining agreement which expires October 9, 2003.
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
Longwood, Florida 900 Leased
Wichita, Kansas 50,000 Leased
Wichita, Kansas 153,000 Owned
ITEM 3. LEGAL PROCEEDINGS
On April 15, 1999, the jury in a case involving patent, trademark and trade
dress infringement, Bard Manufacturing Company et al. v. Crispaire Corporation,
No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire for patent
infringement in an amount of $9,000,000. The matter was settled during the first
quarter of 2001 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 2002.
Page 7 of 48
PART II
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)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales $159,111 $145,144 $177,896 $183,037 $157,425
Cost of goods sold 129,693 117,867 145,369 144,862 123,581
------- ------- ------- ------- -------
Gross profit 29,418 27,277 32,527 38,175 33,844
Selling, general and administrative expenses 16,462 15,628 16,681 17,146 15,297
Operating income 11,919 13,998 12,141 10,733 16,077
Income (loss) from continuing operations before
income taxes, extraordinary item and cumulative
effect of change in accounting principle 945 2,656 164 (1,685) 3,801
Cumulative effect of change in accounting
principle (19,718) -- -- -- --
Net income (loss) (19,079) 1,671 (169) (1,042) 2,251
OTHER DATA:
Gross margin percentage 18.5% 18.8% 18.3% 20.9% 21.5%
EBITDA (1) $ 15,304 $ 19,244 $ 18,072 $ 16,297 $ 20,671
EBITDA margin percentage 9.6% 13.3% 10.2% 8.9% 13.1%
Cash provided by operating activities $ 8,770 $ 6,515 $ 7,522 $ 12,812 $ 2,047
Cash used in investing activities (2,587) (2,219) (4,980) (3,133) (30,346)
Cash provided by (used in) financing activities (6,587) (3,885) (2,495) (9,731) 18,785
Depreciation and amortization (2) 3,385 5,246 5,931 5,564 4,594
Capital expenditures 2,498 2,314 3,125 2,638 1,852
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (3) $20,136 $21,499 $18,554 $15,781 $23,368
Total assets 79,424 104,586 116,960 118,212 126,590
Total debt 97,914 104,501 107,338 106,910 119,506
Total stockholders' equity (deficiency) (37,753) (17,724) (19,109) (18,940) (17,898)
- ----------
(1) EBITDA represents earnings before interest expense, net, other
nonoperating expense, net, income tax expense, depreciation and
amortization. Other nonoperating (income) expenses were $185, $39, $52,
$2, and $(92) for the years ended December 31, 2002, 2001, 2000, 1999,
and 1998, 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 $0, $100, $228, $662, and $1,290 as of December 31, 2002,
2001, 2000, 1999, and 1998, respectively.
Page 8 of 48
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.
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.
The Company recognizes revenue and related direct expenses when the
merchandise is shipped. Other operating expenses are recognized as incurred.
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 $11.2 million, net of allowance
for doubtful accounts of $.3 million as of December 31, 2002. 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 adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" on January 1, 2002. This new
accounting standard required that goodwill and indefinite lived assets no longer
be amortized but instead be tested at least annually for impairment and expensed
against earnings when the implied fair value of a reporting unit, including
goodwill, is less than its carrying amount. The company engaged an independent
appraisal company to assist with the valuation. Upon initial application of SFAS
No. 142, the Company reassessed the useful lives of the intangible assets and
determined that certain trademarks are deemed to have an indefinite useful life
because they are expected to generate cash flows indefinitely and there are no
legal or contractual restrictions on their use. In addition, assembled work
force and customer base was reclassified to goodwill in accordance with SFAS No.
142. Other trademarks have a finite life and will continue to be amortized over
their remaining useful life. The Company has three reporting units with
goodwill. As determined by the step one assessment for each reporting unit, the
estimated fair value, based on a present value valuation, was less than its
carrying amount including goodwill. Step two of the assessment indicated there
was impairment, net of tax, of $19,718, which was recorded as a cumulative
effect of a change in accounting principle in the accompanying consolidated
statement of operations.
The Company adopted SFAS No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets". This standard supercedes both SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", and sections of Accounting Principles Board Opinion 30, providing one
accounting model with which to review for asset impairment. SFAS No. 144 retains
much of the recognition and measurement provision of SFAS No. 121, but removes
goodwill and other indefinite lived assets from its scope. It also alters the
criteria of classifying long-lived assets to be disposed of by sale and changes
the method of accounting for the disposal of long-lived assets if other than
through a sale. Finally, while this statement retains the basic presentation
provisions for discontinued operations, it broadens the definition of a
discontinued operation to include
Page 9 of 48
a component of an entity. The Company has determined the adoption of this
standard did not have a material effect on the consolidated financial position,
results of operations or cash flows.
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, 2002 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, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Net Sales. Net sales increased 9.6% from $145.1 million in 2001 to $159.1
million in 2002. Net sales increased primarily due to volume growth within the
RV industry.
Gross Profit. Gross profit increased 7.7% from $27.3 million (19% of net
sales) in 2001 to $29.4 million (19% of net sales) in 2002. The increase was
principally due to the increased sales volume.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses decreased 4.4% from $18.3 million (13% of net sales) in 2001 to $17.5
million (11% of net sales) in 2002, primarily due to decreased amortization
expense of goodwill and other indefinite lived intangible assets due to adoption
of SFAS No. 142 and to other intangible assets becoming fully amortized. In
addition, the decrease in selling, general and administrative expense as a
percentage of sales is due to the relatively fixed nature of many of these
costs.
Accrued litigation (income) expense. Accrued litigation income decreased as
a result of the settlement of the litigation in 2001 as described in Note 13of
the notes to the consolidated financial statements.
Interest Expense. Interest expense decreased 5.3% from $11.4 million in
2001 to $10.8 million in 2002 primarily due to reductions in average long term
borrowings outstanding resulting from improved operating cash flows and
decreased average interest rates on outstanding borrowings.
EBITDA. EBITDA was $19.2 million in 2001 and $15.3 million in 2002. The
decrease is primarily due to the decreased accrued litigation income as
described above offset by increased gross profit associated with higher sales
volumes
Income from continuing operations before income tax expense, extraordinary
item and cumulative effect of change in accounting principle. Income from
continuing operations before income tax expense, extraordinary item and
cumulative effect of change in accounting principle decreased from $2.7 million
in 2001 to $.9 million in 2002 primarily due to decreased accrued
Page 10 of 48
litigation income as described above offset by the effects of increased gross
profit on higher sales volumes and lower amortization expense associated with
intangible assets.
Cumulative effect of change in accounting principle. Cumulative effect of
change in accounting principle increased as a result of the adoption of
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets" and the impairment charges recorded as further discussed in
Note 2(g) of the notes to the consolidated financial statements.
Net income (loss). Net income (loss) decreased from net income of $1.7
million in 2001 to a net loss of $19.1 million in 2002 primarily as a result of
the cumulative effect of change in accounting principle and the conditions
affecting the decreased income from continuing operations as described above.
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. The increase in selling, general and administrative
expenses as a percentage of sales is due to the relatively fixed nature of many
of these costs.
Accrued litigation (income) expense. Accrued litigation income was the
result of the settlement of the litigation in 2001 as described in Note 13 of
the notes to the consolidated financial statements.
Interest expense. Interest expense decreased 4.2% from $11.9 million in
2000 to $11.4 million in 2001 primarily due to reductions in average long term
borrowings outstanding resulting from improved operating cash flows and
decreased average interest rates on outstanding borrowings.
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 associated with lower sales volumes.
Income from continuing operations before income tax expense, extraordinary
item and cumulative effect of change in accounting principle. Income from
continuing operations before income tax expense, extraordinary item and
cumulative effect of change in accounting principle increased from $.2 million
2000 to $2.7 million in 2001 primarily due to accrued litigation income as
described above offset by decreased gross profit on lower sales volumes.
Page 11 of 48
Net income (loss). Net income (loss) improved from a net loss of $.2
million in 2000 to a 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $8.8 million in net cash flow from operating
activities for the year ended December 31, 2002 compared to $6.5 million for
2001, primarily as a result of improved gross profit on higher sales volumes,
better controlled expenses and improved working capital management.
Capital expenditures were $2.5 million, $2.3 million, and $3.1 million for
the years ended December 31, 2002, 2001, and 2000, respectively. The
expenditures include the normal replacement of machinery, equipment and tooling
for new product and existing product improvements. Capital expenditures for 2003
are expected to be slightly above the 2002 level.
Cash used in investing activities in 2000 has otherwise been affected by
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 recorded as goodwill.
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, 2002 is $7.6 million which is approximately $6.5
million less that that outstanding at December 31, 2001 due to improved
operating cash flows in 2002. Interest on the revolving credit facility is based
on either the bank's base rate or Libor rate plus 2% (3.42% combined rate at
December 31, 2002).
In addition to the revolving credit facility, the Company is party to
senior subordinated notes which mature on November 15, 2007. The $90.0 million
in notes payable bear interest at 11%, payable semiannually in May and November.
Additionally, the Company has an outstanding note payable to an individual
for a land purchase totaling $.2 million at December 31, 2002 which matures in
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, 2002 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 amount to $1.3 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, 2002. The Preferred stock which is exchangeable at the
Page 12 of 48
stockholders' option for junior subordinated notes issued by Holdings, is
subject to mandatory redemption by Holdings on November 10, 2008 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 $21.4 million as of December 31, 2002. The Company is not required
to fund the mandatory redemption of these preferred shares.
Holdings also previously issued $4.0 million of junior subordinated notes
to the parent company of a major stockholder in exchange for cash which are due
in November 2008. 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 $9.6 million as of December
31, 2002. As part of the Marvair acquisition in 1997, 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. The PIK notes, and accrued interest, totaled $8.3 million as of
December 31, 2002. In February 2003, the Company purchased all of the PIK Notes
from the holders of the PIK Notes for an aggregate purchase price of $3.4
million. Although the Company may determine to distribute the PIK Notes to
Holdings, subject to compliance with the Company's credit facility, senior
subordinated notes and other debt agreements, the Company does not anticipate
this will occur in the foreseeable future. Although Holdings is entirely
dependent upon the company to service its note obligations and the mandatory
redemption provisions of the preferred stock, Holdings would not require cash
distributions from the Company for debt service until at least 2008 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 on behalf of Holdings.
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 also
contains a subjective acceleration clause. The Company is in compliance with
these ratios at December 31, 2002 and 2001. The Company anticipates that they
will continue to comply in 2003 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 2003. 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
Page 13 of 48
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 to any financing, liquidity, market or credit risk that could
arise if the Company were engaged in such relationships.
On February 25, 2003 the Company amended its letter of credit to increase
the amount to $1.5 million. The letter of credit obligates the Company to make
payment in the event of a default on an agreement with an insurance company to
pay workers compensation claims incurred. Management does not expect any
material losses to result from this arrangement 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
On January 1, 2002 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". This new
accounting standard required that goodwill and indefinite lived assets no longer
be amortized but instead be tested at least annually for impairment and expensed
against earnings when the implied fair value of a reporting unit, including
goodwill, is less than its carrying amount.
The company engaged an independent appraisal company to assist with the
valuation. Upon initial application of SFAS No. 142, the Company reassessed the
useful lives of the intangible assets and determined that certain trademarks are
deemed to have an indefinite useful life because they are expected to generate
cash flows indefinitely and there are no legal or contractual restrictions on
their use. In addition, assembled work force and customer base was reclassified
to goodwill in accordance with SFAS No. 142. Other trademarks have a finite life
and will continue to be amortized over their remaining useful life.
The Company has three reporting units with goodwill. As determined by the
step one assessment for each reporting unit, the estimated fair value, based on
a present value valuation, was less than its carrying amount including goodwill.
Step two of the assessment indicated there was impairment, net
Page 14 of 48
of tax, of $19,718, which was recorded as a cumulative effect of a change in
accounting principle in the accompanying consolidated statement of operations.
On January 1, 2002, the Company adopted SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This standard supercedes both SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and sections of Accounting Principles Board Opinion
30, providing one accounting model with which to review for asset impairment.
SFAS No. 144 retains much of the recognition and measurement provision of
SFAS No. 121, but removes goodwill and other indefinite lived assets from its
scope. It also alters the criteria of classifying long-lived assets to be
disposed of by sale and changes the method of accounting for the disposal of
long-lived assets if other than through a sale. Finally, while this statement
retains the basic presentation provisions for discontinued operations, it
broadens the definition of a discontinued operation to include a component of an
entity. The Company has determined that the adoption of this standard did not
have a material effect on the 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 4.2% per annum, a 1% increase
Page 15 of 48
in market interest rates would increase interest expense and decrease earnings
before income taxes by approximately $76,000 annually.
Market risk on fixed-rate financial instruments: Included in long-term debt
are $90 million of 11% Senior Subordinated Notes due 2007. Increases in market
interest rates would generally cause a decrease in the fair market value of the
Notes and a decrease in market interest rates would generally cause an increase
in fair value of the Notes.
Page 16 of 48
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Airxcel, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Airxcel,
Inc. and Subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, stockholder's equity (deficiency), and cash flows for
the year then ended. Our audit also included the 2002 financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Airxcel, Inc.
and Subsidiaries at December 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related 2002 financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2002
the Company changed its method of accounting for goodwill and other intangible
assets.
/s/ ERNST & YOUNG LLP
---------------------
Kansas City, Missouri
February 7, 2003, except for Note 14
as to which the date is February 25, 2003
Page 17 of 48
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 15 (a)(1) on page 42 present fairly, in all material
respects, the financial position of Airxcel, Inc. and its subsidiaries at
December 31, 2001 and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2001, inconformity 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 15 (a)(2) on page 42 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.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 13, 2002, except with respect to the 2001 and 2000 transitional
disclosures relating to the adoption of Statement of Financial
Accounting Standards No. 142 as described in Note 2,
as to which the date is January 1, 2002
Page 18 of 48
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2002 2001
--------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 179 $ 583
Accounts receivable, net of allowances for doubtful
accounts of $314 and $295, in 2002 and 2001, respectively 11,171 10,818
Inventory 22,498 22,161
Prepaid expenses and other current assets 387 172
Income taxes receivable - - 319
Deferred income taxes 3,552 1,758
--------------- ----------------
Total current assets 37,787 35,811
--------------- ----------------
Deferred income taxes 4,096 - -
Property, plant and equipment, net 17,725 17,668
Loan financing costs, net 1,956 2,389
Other identifiable intangible assets, net 1,987 2,788
Goodwill and other indefinite lived intangible assets 15,873 45,930
--------------- ----------------
Total assets $ 79,424 $ 104,586
=============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 81 $ 126
Accounts payable 9,097 7,507
Warranty reserve 1,905 1,851
Accrued interest 1,239 1,241
Accrued payroll 3,357 1,795
Pension liability 398 326
Other accrued expenses 1,574 1,366
Liabilities of discontinued operations - - 100
--------------- ----------------
Total current liabilities 17,651 14,312
Pension liability 1,693 232
Long-term debt, less current portion 97,833 104,375
Deferred income taxes - - 3,391
--------------- ----------------
Total liabilities 117,177 122,310
--------------- ----------------
Commitments and contingencies (see Notes 1 and 4) Stockholder's equity
(deficiency):
Common stock, par value $1; 1,000 shares authorized;
1,000 shares issued and outstanding 1 1
Additional paid-in capital 27,322 27,322
Accumulated deficit (64,091) (45,012)
Accumulated other comprehensive loss (985) (35)
--------------- ----------------
Total stockholder's equity (deficiency) (37,753) (17,724)
--------------- ----------------
Total liabilities and stockholder's equity (deficiency) $ 79,424 $ 104,586
=============== ================
See accompanying notes.
Page 19 of 48
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended
---------------------------------------------------
December 31, December 31, December 31,
---------------- --------------- ---------------
2002 2001 2000
---------------- --------------- ---------------
Net sales $ 159,111 $ 145,144 $ 177,896
Cost of goods sold 129,693 117,867 145,369
---------------- --------------- ---------------
Gross profit 29,418 27,277 32,527
---------------- --------------- ---------------
Operating expenses:
Selling, general and administrative 16,462 15,628 16,681
Amortization of intangible assets and computer
software 1,037 2,700 2,805
Accrued litigation (income) expense - - (5,049) 900
---------------- --------------- ---------------
Total operating expenses 17,499 13,279 20,386
---------------- --------------- ---------------
Income from operations 11,919 13,998 12,141
Interest expense 10,789 11,436 11,944
Minority interest - - (133) (19)
Other expense, net 185 39 52
---------------- --------------- ---------------
Income from continuing operations before income
tax expense, extraordinary item and cumulative
effect of change in accounting principle 945 2,656 164
Income tax expense
368 1,064 126
---------------- --------------- ---------------
Income from continuing operations before
extraordinary item and cumulative effect of change
in accounting principle 577 1,592 38
Discontinued operations:
Recovery on disposal of Faulkner Manufacturing
less applicable income tax expense of
$38, $49, and $174, respectively 62 79 277
---------------- --------------- ---------------
Income before extraordinary item and
cumulative effect of change in accounting
principle 639 1,671 315
Extraordinary losses on early extinguishments of
debt, less applicable income tax benefit of
$0, $0 and $304, respectively - - - - 484
Cumulative effect of change in accounting principle,
net of income taxes of $10,130 (19,718) - - - -
---------------- -------------- --------------
Net income (loss) (19,079) 1,671 (169)
Other comprehensive loss:
Minimum pension liability, net of tax of $595
$22, and $0, respectively (950) (35) - -
---------------- --------------- ---------------
Comprehensive income (loss) $ (20,029) $ 1,636 $ (169)
================ =============== ===============
See accompanying notes.
Page 20 of 48
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF 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, 2000 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 - -
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)
Net loss - - - - - - (19,079) - - (19,079)
Minimum pension liability, net
of tax - - - - - - - - (950) (950)
-------- -------- ---------- ------------- ------------- ------------
Balances, December 31, 2002 1,000 $ 1 $ 27,322 $ 64,091) $ (985) $ (37,753)
======== ======== ========== ============= ============= ============
See accompanying notes.
Page 21 of 48
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
--------------------------------------------------
December 31, December 31, December 31,
2002 2001 2000
--------------- --------------- ---------------
Cash flows from operating activities:
Net income (loss) $ (19,079) $ 1,671 $ (169)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 2,348 2,546 3,126
Amortization of intangible assets and computer
software 1,037 2,700 2,805
Amortization of loan financing costs 433 432 512
Provision for bad debts 25 (20) 271
Recovery on disposal of discontinued operations (100) (128) (434)
Deferred income taxes (8,686) 1,619 (652)
(Gain) loss on sale of property, plant and equipment 90 (20) 31
Minority interest in earnings of subsidiaries - - (133) (19)
Impairment write off of goodwill and trademark costs 29,848 - - - -
Impairment write off of patent and license agreement costs 65 - - - -
Extraordinary losses on early extinguishments of
debt - - - - 489
Changes in operating assets and liabilities, net of the
effects of acquisitions:
Accounts receivable (378) 3,926 76
Inventory (337) 4,036 (373)
Prepaid expenses and other assets 104 1,456 (347)
Accounts payable 1,590 (2,426) 2,385
Accrued expenses and other liabilities 1,810 (9,144) (179)
--------------- --------------- ---------------
Net cash provided by operating activities 8,770 6,515 7,522
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 3 101 3
Capital expenditures (2,498) (2,314) (3,125)
Acquisition of patent (92) (6) - -
Computer software and intangible expenditures - - - - (485)
Acquisitions, net of cash acquired - - - - (1,373)
--------------- --------------- ---------------
Net cash used in investing activities (2,587) (2,219) (4,980)
--------------- --------------- ---------------
Cash flows from financing activities:
Cash overdraft - - (419) (2,463)
Proceeds from long-term obligations 156,004 149,152 193,391
Principal payments on long-term debt (162,591) (151,975) (193,071)
Financing costs incurred - - (16) (352)
Dividend to parent - - (627) - -
--------------- --------------- ---------------
Net cash used in financing activities (6,587) (3,885) (2,495)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (404) 411 47
Cash and cash equivalents, beginning of year 583 172 125
--------------- --------------- ---------------
Cash and cash equivalents, end of year $ 179 $ 583 $ 172
=============== =============== ===============
Page 22 of 48
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended
--------------------------------------------------
December 31, December 31, December 31,
2002 2001 2000
--------------- --------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 10,375 $ 11,059 $ 11,237
Income taxes, net (1,439) (1,711) 919
Supplemental non cash investing and financing information:
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
=============== ============ ===============
See accompanying notes.
Page 23 of 48
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, 2002 and 2001. 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 November 10, 2008 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 $21,354, $18,618, and $16,232 as of December 31, 2002, 2001 and
2000, 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 November, 2008, bear interest at 14% payable semiannually in the form
of additional junior subordinated notes
Page 24 of 48
or cash at the election of Holdings. Such notes, plus accrued interest totaled
$9,589, $8,360, and $7,286 as of December 31, 2002, 2001 and 2000, 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 $8,299, $7,439 and $7,272
as of December 31, 2002, 2001 and 2000, 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, Holdings would
not require cash distributions from the Company for debt service until at least
2008 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 Holdings financial statements. On April 3, 1998 new warrants were
issued for 229,662.50 shares of Class B Common Stock of Holdings at $.01 per
share at any time on or before April 30, 2008. The new warrants are entitled to
the same rights as the existing warrants. Proceeds from the issuance of warrants
of $765 were contributed by Holdings to the Company.
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. All
significant intercompany transactions and accounts are eliminated in
consolidation.
c. Revenue Recognition: Revenue and related direct expenses are recognized
when the merchandise is shipped. Other operating expenses are recognized as
incurred.
Page 25 of 48
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 building 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 of the related asset 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. Intangible Assets: The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" on January 1,
2002. This new accounting standard requires that goodwill and indefinite lived
assets no longer be amortized but instead be tested at least annually for
impairment and expensed against earnings when the implied fair value of a
reporting unit, including goodwill, is less than its carrying amount. The
company engaged an independent appraisal company to assist with the valuation.
Upon initial application of SFAS No. 142, the Company reassessed the useful
lives of the intangible assets and determined that certain trademarks are deemed
to have an indefinite useful life because they are expected to generate cash
flows indefinitely and there are no legal or contractual restrictions on their
use. In addition, assembled work force and customer base was reclassified to
goodwill in accordance with SFAS No. 142. Other tradenames have a finite life
and will continue to be amortized over their remaining useful life.
The Company has three reporting units with goodwill. As determined by the
step one assessment for each reporting unit, the estimated fair value, based on
a present value valuation, was less than its carrying amount including goodwill,
primarily due to the decline in the telecommunications industry. Step two of the
assessment indicated there was impairment of goodwill and certain trademark
costs, amounting to $19,718 (net of $10,130 in taxes), which was recorded as a
cumulative effect of a change in accounting principle in the accompanying 2002
consolidated statement of operations.
Page 26 of 48
Intangible assets, which are amortized on a straight-line basis over their
estimated economic lives, are as follows:
Amortization December 31, December 31
Period 2002 2001
---------------- --------------- ---------------
Intangible assets subject to amortization:
Gross carrying amount:
Computer software 5 years $ 712 $ 694
Tradename 50 years 1,454 1,454
Patents 5 - 7 years 3,705 3,652
License agreements 10 years 475 527
------------- -------------
Subtotal 6,346 6,327
Accumulated amortization:
Computer software $ 463 $ 331
Tradename 339 310
Patent 3,451 2,833
License agreements 106 65
------------- -------------
Subtotal 4,359 3,539
------------- -------------
Net intangible assets subject to amortization $ 1,987 $ 2,788
============= =============
Intangible assets not subject to amortization:
Goodwill $ 12,973 $ 29,477
Trademarks 2,900 16,453
------------- -------------
Subtotal $ 15,873 $ 45,930
============= =============
Amortization of finite lived intangible assets for the years ended December
31, 2002, 2001 and 2000 was $829, $983, and $1,227, respectively. Amortization
for the remaining amount of finite lived intangible assets, as of December 31,
2002, is expected to be $299 in 2003, $263 in 2004, $108 in 2005, $90 in 2006,
and $84 in 2007.
The following pro forma table reflects the effects of the adoption of SFAS
No. 142 on net income (loss) to exclude amortization on goodwill and indefinite
lived intangible assets, net of any related tax effects.
December 31,
----------------------------
2001 2000
----------- ------------
Income before extraordinary item $ 1,671 $ 315
Goodwill amortization 962 875
Trademark amortization 343 343
----------- -----------
Income before extraordinary item as adjusted $ 2,976 $ 1,533
=========== ===========
Net income (loss) as originally reported $ 1,671 $ (169)
Add back after-tax effect of:
Goodwill amortization 962 875
Trademark amortization 343 343
----------- ------------
Net income as adjusted $ 2,976 $ 1,049
=========== ============
h. Impairment of Long Lived Assets: On January 1, 2002, the Company adopted
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets".
This standard supercedes both SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to
Page 27 of 48
be Disposed Of", and sections of Accounting Principles Board Opinion 30,
providing one accounting model with which to review for asset impairment.
SFAS No. 144 retains much of the recognition and measurement provision of
SFAS No. 121, but removes goodwill and other indefinite lived assets from its
scope. It also alters the criteria of classifying long-lived assets to be
disposed of by sale and changes the method of accounting for the disposal of
long-lived assets if other than through a sale. Finally, while this statement
retains the basic presentation provisions for discontinued operations, it
broadens the definition of a discontinued operation to include a component of an
entity. During 2002 the company determined that certain patent and license
agreement costs, based on a present value valuation, were impaired. An
impairment charge of $65 was recognized and included in other expense.
i. Loan Financing Costs: Loan financing costs are amortized using the
effective yield method over the contracted terms of the related debt.
j. Income Taxes: The Company and its parent file a consolidated federal
income tax return. Deferred income taxes are recorded to reflect the tax
consequences in future years of operating loss carry forwards and temporary
differences between the tax basis of assets and liabilities and their financial
reporting amounts using enacted tax rates for the years in which these items are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is comprised of the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
k. Concentration of Credit Risk. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. The credit risk on trade receivables is controlled through credit
approvals, limits and monitoring procedures. Trade receivables are generally due
within 30 days. The majority of the Company's trade receivables are from
customers in the RV industry. Credit losses historically have been
insignificant. The Company's ten largest customers accounted for approximately
58%, 50% and 50% of net sales for the years ended December 31, 2002, 2001 and
2000, respectively, and approximately 46% and 42% of accounts receivable at
December 31, 2002 and 2001, respectively.. Sales to customers in excess of 10%
of consolidated net revenues are as follows:
December 31, December 31, December 31,
Customer 2002 2001 2000
---------------- ------------- --------------
A. $ 18,604 $ 14,400 $ 19,604
B. 18,279 14,080 11,615
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 2002 and 2001 that exceeded
FDIC insurance limits by $53 and $34, respectively.
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 $354, $361, and $374 in 2002, 2001, and 2000,
respectively.
m. Shipping and Handling Costs: The Company records charges to customers
for shipping and handling as sales, and costs incurred by the Company as cost of
goods sold.
Page 28 of 48
n. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 2002, 2001 and 2000, excluding the $90 million of
senior subordinated notes, approximate fair market value. The fair value of the
Company's senior subordinated notes is $73.8 million at December 31, 2002 based
on the quoted market price for the same issue or similar issues.
o. Reclassification: Certain amounts in the 2001 and 2000 consolidated
financial statements have been reclassified to conform to the 2002 presentation.
p. Collective Bargaining Agreement: As of December 31, 2002, the Company
had 923 employees of which 36% were represented by a bargaining agreement that
expires October 9, 2003.
3. SUMMARY BALANCE SHEET DATA:
Inventory consists of the following:
December 31, December 31,
2002 2001
------------------ ---------------
Raw materials .......................... $ 9,431 $ 9,944
Work-in-process ........................ 2,104 1,896
Finished goods ......................... 10,963 10,321
------- -------
$22,498 $22,161
======= =======
Property, plant and equipment, including amounts under capital leases,
consist of the following:
December 31, December 31,
2002 2001
------------------ ---------------
Land and land improvements .............. $ 1,235 $ 1,235
Buildings and building improvements ..... 7,873 7,825
Machinery and equipment ................. 22,592 19,960
Furniture and fixtures .................. 1,665 1,424
Construction in process ................. 440 1,037
-------- --------
33,805 31,481
Less accumulated depreciation ........... (16,080) (13,813)
-------- --------
Net ..................................... $17,725 $17,668
======== ========
Page 29 of 48
4. LONG-TERM DEBT:
Long-term debt consists of the following:
December 31, December 31,
2002 2001
------------------ ----------------
Note payable to bank under a $31,000 revolving line of credit, maturing on June
29, 2005, with interest at bank's base rate or Libor plus 2% (3.42% at
December 31, 2002) payable monthly. $ 7,583 $ 14,125
Senior subordinated notes, with interest at 11% payable
semiannually on May 15 and November 15, commencing on
May 15, 1998, due November 15, 2007 90,000 90,000
Note payable to individual for land purchase, with interest
at 7.6%, due in monthly principal and interest payments
of $4 through April 1, 2007, collateralized by the land 195 232
Capital leases 136 144
------------------ ----------------
97,914 104,501
Current portion of long term debt (81) (126)
------------------ ----------------
$ 97,833 $ 104,375
================== ================
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, as defined. The credit
facility also contains a subjective acceleration clause, the application of
which is not anticipated. 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, 2002 and 2001.
The Company anticipates that they will continue to comply in 2003 with the
financial covenants based on estimates of working capital levels and operating
profitability included in management's current business plan for 2003. The
achievement of this plan is necessary to comply with the various financial
covenants during 2003. 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 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.
Page 30 of 48
Principal maturities of long-term debt, and capital lease amortization,
based on balances outstanding at December 31, 2002 for each of the five
succeeding years are as follows:
Capital Leases
-----------------------------------------------------------------------
Long-term Minimum Net Present
Debt Lease Payment Interest Value Total
------------- ------------- ------------------ ------------- -------------
2003 37 51 7 44 81
2004 43 29 5 24 67
2005 7,630 29 3 26 7,656
2006 50 29 2 27 77
2007 90,018 15 - - 15 90,033
------------- ----------------- ------------- ------------- -------------
$ 97,778 $ 153 $ 17 $ 136 $ 97,914
============= ================= ============= ============= =============
Property, plant and equipment include the following amounts for capital
leases:
December 31,
2002
------------
Machinery and equipment ............................ $200
Furniture and fixtures ............................. 136
-----
336
Less accumulated depreciation ...................... (158)
-----
Net property, plant and equipment................... $178
=====
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 of Holdings 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 SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options granted to the Company's
employees is measured as the excess, if any, of the fair value of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. The Company has not recorded any compensation expense for the years
ended December 31, 2002, 2001, and 2000.
6. INCOME TAXES:
The significant components of the net deferred income tax asset (liability)
recognized in the
Page 31 of 48
accompanying consolidated balance sheets are as follows:
December 31, December 31,
2002 2001
------------------ -----------------
Provision for discontinued operations $ - - $ 38
Accrued reserves and liabilities 2,481 3,074
Depreciation (2,610) (2,223)
Intangibles 6,091 (2,738)
AMT tax credit carry forwards 310 - -
Federal net operating loss carry forwards, expiring
beginning in 2021 816 - -
State income tax net operating loss carry forwards,
expiring beginning 2010 560 216
-------------- ---------------
7,648 (1,633)
Less current deferred income taxes 3,552 1,758
-------------- ----------------
Total noncurrent deferred income taxes $ 4,096 $ (3,391)
============== ===============
At December 31, 2002, the Company had federal and state net operating loss
carryforwards of approximately $2,400 and $6,400, respectively, which is
available to offset future taxable income. Utilization of the net operating loss
carryforwards could be subject to certain limitations in the event of changes in
ownership of the Company.
The components of income tax (benefit) expense from continuing operations,
exclusive of taxes related to the extraordinary items and cumulative effect of
change in accounting principle, are as follows:
December 31, December 31, December 31,
2002 2001 2000
---------------- ------------------ -----------------
Current $ (1,038) $ (505) $ 831
Deferred 1,406 1,569 (705)
------------- --------------- -------------
Income tax expense $ 368 $ 1,064 $ 126
============= =============== =============
Income tax expense from continuing operations differed from the amounts
computed by applying the federal statutory rate to pretax income as follows:
December 31, December 31, December 31,
2002 2001 2000
--------------- ------------------ -----------------
Income tax expense computed by applying
the federal statutory rate $ 321 $ 930 $ 50
Minority interest - - (46) 12
State income taxes, net of federal income tax
benefit 43 94 6
Nondeductible amortization expense - - 167 149
Other 4 (81) (91)
-------------- --------------- ------------
Income tax expense from continuing operations $ 368 $ 1,064 $ 126
============== =============== ============
7. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT:
On June 30, 2000, the Company refinanced its 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).
Page 32 of 48
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. 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 $779, $823 and $945 for the years ended December 31, 2002,
2001 and 2000, respectively.
Commitments for future minimum lease payments under noncancellable leases
as of December 31, 2002 are as follows:
Operating
Leases
--------------
2003 $ 501
2004 340
2005 278
2006 230
2007 3
----------
$ 1,352
==========
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% 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, 2002, 2001 and
2000 totaled $303, $346 and $379, respectively.
Suburban sponsors two contributory defined benefit pension plans, the
Suburban Manufacturing Company Retirement Plan ("Plan 1") and the Suburban
Manufacturing Company Retirement Plan for Bargaining Employees ("Plan 2"). The
plans cover substantially all Suburban Manufacturing Company employees meeting
certain eligibility requirements. Assets of the plans consist of various
marketable securities and investments in bond funds. The Company's funding
policy is to contribute amounts that are sufficient, when added to participants'
contributions, to fund the retirement benefits of all participants in accordance
with the requirements of the Internal Revenue Code. The plans actuarial
measurement dates are September 30, 2002 and 2001.
In accordance with SFAS No. 87, "Employers' Accounting for Pensions" an
additional minimum pension liability for pension plans with accumulated benefits
in excess of plan assets must be recognized. At December 31, 2002, a minimum
pension liability adjustment of $985
Page 33 of 48
(net of income tax benefit of $617) is included in the accompanying consolidated
balance sheets.
December 31, 2002 December 31, 2001
------------------------ ---------------------
Plan 1 Plan 2 Plan 1 Plan 2
-------------- --------- --------- ---------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at September 30 ... $2,939 $2,218 $2,854 $1,916
Service cost ......................... 163 218 139 178
Interest cost ........................ 218 164 220 146
Benefits paid ........................ (66) (114) (74) (85)
Actuarial gain (loss) ................ 157 68 (305) (13)
Change in assumptions ................ 400 291 105 76
------- ------- ------- -------
Benefit obligation at September 30 ... $3,811 $2,845 $2,939 $2,218
------- ------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at September 30 ...................... $2,414 $1,849 $2,776 $2,043
Employer contributions ............... 179 113 16 94
Employee contributions ............... 35 68 35 63
Actual return on plan assets ......... (283) (220) (339) (266)
Benefits paid ........................ (66) (114) (74) (85)
------- ------- ------- -------
Fair value of plan assets
at September 30 ...................... $2,279 $1,696 $2,414 $1,849
------- ------- ------- -------
Unfunded status ...................... $1,532 $1,149 $525 $369
Unrecognized net actuarial gain (loss) (1,116) (1,005) (72) (284)
Employer contribution after
measurement date ..................... (27) (45) (37) - -
Adjustment to recognize minimum
liability ............................ 857 745 - - 57
------- ------- ------- -------
Accrued benefit cost ................. $1,246 $844 $416 $142
======= ======= ======= =======
Weighted-average assumptions as of September 30:
Discount rate .................................. 6.75% 6.75% 7.50% 7.50%
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%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost ................................... $163 $218 $139 $178
Interest cost .................................. 218 164 220 146
Expected return on plan assets ................. (208) (161) (237) (179)
Amortization of net gain ....................... - - 6 (2) (1)
Employee contributions ......................... (31) (55) (35) (54)
----- ----- ----- -----
Net periodic benefit cost ...................... $142 $172 $85 $90
===== ===== ===== =====
11. 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
Page 34 of 48
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.
12. 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 2002, 2001 and
2000. Accordingly, Faulkner is reported as a discontinued operation for the
years ended December 31, 2002, 2001 and 2000.
There were no sales from the Faulkner division for the years ended December
31, 2002, 2001 and 2000.
Liabilities of the discontinued operations were $0, $100 and $228 at
December 31, 2002, 2001 and 2000, respectively, which primarily consist of
remaining warranty obligations.
The recoveries on the disposal of Faulkner were $100, $128, and $451 at
December 31, 2002, 2001 and 2000 respectively.
13. 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. The matter was settled during the first
quarter of 2001 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 remaining accrual at the date of settlement was written
off to income and is included in the accompanying 2001 consolidated statement of
operations. 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.
14. SUBSEQUENT EVENT:
On January 9, 2003 the Company amended its Credit Facility with a bank to
reduce the total commitment to $25,000.
On February 19, 2003, the company purchased all of the PIK notes from the
holders for an aggregate purchase price of $3,448. Although the Company may
determine to distribute the PIK Notes to Holdings, subject to compliance with
the Company's credit facility, senior subordinated notes and other debt
agreements, the Company does not anticipate this will occur in the foreseeable
future.
On February 25, 2003 the Company amended its letter of credit to increase
the amount to $1,464. The letter of credit obligates the Company to make payment
in the event of a default on an agreement with an insurance company to pay
workers compensation claims incurred. Management does not expect any material
losses to result from this arrangement because
Page 35 of 48
performance is not expected to be required, and therefore, is of the opinion
that the fair value of this instrument is zero.
Page 36 of 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 16, 2002, Airxcel, Inc. (the "Company") dismissed
PricewaterhouseCoopers LLP as its independent auditor. The decision to dismiss
PricewaterhouseCoopers LLP was approved by its Board of Directors.
The reports of PricewaterhouseCoopers LLP on the financial statements of
the Company for each of the years ended December 31, 2000 and 2001 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the years ended December 31, 2000 and
2001 and through the interim period between December 31, 2001 and May 16, 2002,
there were no disagreements between the Company and PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused it to make
reference to the subject matter of the disagreements in connection with its
report on the financial statements for such years.
During the years ended December 31, 2000 and 2001, and the interim period
between December 31, 2001 and May 16, 2002 there were no reportable events (as
defined in Item 301(a) (1) (v) of Regulation S-K promulgated by the Securities
and Exchange Commission) except that in connection with its audit for the year
ended December 31, 2001, PricewaterhouseCoopers LLP reported to the Board of
Directors a material weakness in the inventory system at the Company's Marvair
division. The Company has authorized PricewaterhouseCoopers LLP to respond fully
to Ernst & Young LLP (successor auditor) concerning this matter.
The Company has engaged Ernst & Young LLP as its new independent auditor,
effective May 21, 2002. During the years ended December 31, 2000 and 2001, and
the interim period between December 31, 2001 and May 16, 2002, the Company did
not consult with Ernst & Young regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, (ii) the
type of audit opinion that might be rendered on the Company's financial
statements or (iii) any matter that was either the subject of a disagreement or
a reportable event.
Page 37 of 48
PART III
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 57 President and Chief Executive Officer, Director
Gregory G. Guinn 54 President -- RV Products
Richard L. Schreck 50 Chief Financial Officer, Secretary, Treasurer
Lonnie L. Snook 67 Vice President -- RV Manufacturing and
Engineering
George D. Wyers 70 Retired, former President -- Marvair, Director
Dean T. DuCray 62 Director
Lawrence Jones 71 Director
James A. Urry 48 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.
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.
Page 38 of 48
Dean T. DuCray. Mr. DuCray has been a director of the Company since 1996.
In April 1998 Mr. DuCray retired as Chief Financial Officer and Vice President
of York International Corporation, a position held since 1987, a manufacturer of
heating and air conditioning equipment. Mr. DuCray is currently serving as a
consultant for various companies.
Lawrence Jones. Mr. Jones has been a director of the Company since 1991.
Mr. Jones retired from The Coleman Company February 1, 1994 having served as its
Chairman and CEO since 1989. Mr. Jones served as Chairman of the Executive
Committee at The Coleman Company from 1994 to 1995. From 1995 to1997, Mr. Jones
served as consultant and Chairman of Roller Blade (in line skates) and Prince
Sports (tennis rackets). Mr. Jones currently serves as a Director to Union
Pacific Resources (gas exploration). Mr. Jones retired from the Fleming
Company's (food distribution) Board of Directors on January 1, 1998.
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 39 of 48
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, 2002.
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 2002 $ 289,585 $ 100,000 - - - - $ 17,180
President and Chief Executive Officer 2001 250,008 35,551 - - - - 15,638
2000 250,008 87,280 - - - - 15,845
Gregory G. Guinn 2002 176,875 67,320 - - - - 11,662
President - RVP 2001 165,000 12,343 - - - - 11,239
2000 162,500 109,965 - - - - 11,174
Richard L. Schreck 2002 176,875 75,000 - - - - 11,427
Chief Financial Officer, Secretary and 2001 165,000 23,107 - - - - 10,824
Treasurer 2000 162,500 52,158 - - - - 10,574
Lonnie L. Snook 2002 140,004 57,122 - - - - 11,860
Vice President -- RVP Manufacturing 2001 140,004 13,810 - - - - 11,121
and Engineering 2000 140,004 80,614 - - - - 11,819
George D. Wyers 2002 - - - - - - - - - -
Retired, former President - Marvair 2001 - - - - - - - - - -
division 2000 183,084 12,057 - - - - 1,854
- -----------
(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 40 of 48
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 41 of 48
PART IV
ITEM 14. CONTROLS AND PROCEDURES
In response to adoption of the Sarbanes-Oxley Act of 2002, the Company
formalized its disclosure controls and procedures. The Chief Executive Officer
and Chief Financial Officer met with members of management, members of the
financial accounting and legal departments, and the Company's independent
auditors to discuss and evaluate the Company's disclosures and the effectiveness
of the disclosure controls and procedures. Based on these discussions, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of the disclosure controls and procedures was effective and enabled
the Company to disclose all material financial and non-financial information
affecting its businesses. No significant changes were made in the Company's
internal controls or in other factors that could significantly affect those
controls after the date of the evaluation.
ITEM 15. 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, 2002 and 2001 ... 19
Consolidated Statements of Operations - Years ended
December 31, 2002, 2001, and 2000 .......................... 20
Consolidated Statements of Stockholder's Equity (Deficiency)
Years ended December 31, 2002, 2001, and 2000 .............. 21
Consolidated Statements of Cash Flows - Years ended
December 31, 2002, 2001, and 2000 .......................... 22
Notes to Consolidated Financial Statements ................. 24
(a)(2) The following financial statement schedules are included in Item 15, 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
The following exhibits, except exhibit 16.1, are incorporated by reference
to the Airxcel, Inc. Form S-4 Registration Statement.
3.1 Certificate of Incorporation of Airxcel, Inc., as amended.
3.2 Amended and Restated By-laws of Airxcel, Inc.
4.1 Indenture dated as of November 10, 1997 between Airxcel, Inc. and
United States Trust Company of New York.
4.2 Purchase Agreement dated as of November 5, 1997 among Airxcel, Inc.,
Chase Securities Inc. and NationsBanc Montgomery Securities, Inc.
Page 42 of 48
4.3 Exchange and Registration Rights Agreement dated as of November 10,
1997 among Airxcel, Inc., Chase Securities Inc. and NationsBanc
Montgomery Securities, Inc.
10.1 Amended and Restated Credit Agreement dated as of November 10, 1997
among Airxcel, Inc. and The Chase Manhattan Bank, as Agent.
10.2 Security Agreement dated as of August 22, 1996 among Recreation
Vehicle Products, Inc. and The Chase Manhattan Bank, as agent.
10.3 Security Agreement and Mortgage -- Trademarks and Patents dated as of
August 22, 1996 among Recreation Vehicle Products, Inc. and The Chase
Manhattan Bank, as agent.
10.4 Pledge Agreement dated as of August 22, 1996 among Recreation Vehicle
Products, Inc. and The Chase Manhattan Bank, as agent.
10.5 Executive Securities Purchase Agreement dated as of November 10, 1997
by and between Airxcel Holdings, Inc. and the Purchasers.
10.6 Registration Rights Agreement dated as of August 22, 1996 by and among
RV Products Holding Corp., Citicorp Venture Capital, Ltd., Citicorp
Mezzanine Partners, L.P., CCT III Partners, L.P., the Executives, and
the Individual Investors.
10.7 Joinder to Registration Rights Agreement dated as of November 10, 1997
by and among Airxcel Holdings, Inc., Citicorp Venture Capital, Ltd.,
the Existing Stockholders, and the New Executives.
10.8 Stockholders Agreement dated as of August 22, 1996, as amended by and
among RV Products Holding Corp., Citicorp Venture Capital, Ltd.,
Citicorp Mezzanine Partners, L.P., CCT III Partners, L.P., the
Executives and the Individual Investors.
10.9 Stock Purchase Warrant dated as of August 22, 1996.
10.10 Asset Purchase Agreement effective as of October 17, 1997 by and among
Crispaire Corporation, Airxcel, Inc. and Airxcel Holdings, Inc.
10.11 Distribution Agreement dated as of October 11, 1995 by and between The
Coast Distribution System and Recreation Vehicle Products, Inc.
10.12 Agreement dated as of October 6, 1997 by and between Crispaire
Corporation and the Los Angeles Unified School District.
10.13 Agreement dated as of October 6, 1997 by and between Crispaire
Corporation and the Los Angeles Unified School District.
10.14 Agreement dated as of October 6, 1997 by and between Crispaire
Corporation and the Los Angeles Unified School District.
10.15 Executive Employment Agreement dated as of November 10, 1997 by and
among Airxcel, Inc. and T.K. Sellers, Jr.
10.16 Executive Employment Agreement dated as of November 10, 1997 by and
among Airxcel, Inc. and George D. Wyers.
10.17 Executive Employment Agreement dated as of November 10, 1997 by and
among Airxcel, Inc. and David Shuford.
10.18 Trademark License Agreement by and between the Coleman Company, Inc.
and Coleman R.V. Products, Inc. dated as of May 1, 1991.
10.19 Trademark License Agreement by and between the Canadian Coleman
Company, Ltd. and Coleman R.V. Products, Inc. dated as of May 1, 1997.
10.20 Second Amended and Restated Credit Agreement dated as of March 17,
1998 among Airxcel, Inc., KODA Enterprises Group, Inc., the Guarantors
at any time party thereto, the Lenders named thereto and The Chase
Manhattan Bank, as Agent.
10.21 Stock Purchase Agreement among William S. Karol and Airxcel, Inc.
dated March 17, 1998.
16.1 Letter regarding change in certifying accountant dated May 22, 2002.
Page 43 of 48
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,
2002 $ 295 $ 25 $ (6) $ 314
2001 315 (20) - - 295
2000 490 271 (446) 315
Allowance for Discounts
Year ended December 31,
2002 $ 110 $ 2,148 $ (2,087) $ 171
2001 110 1,714 (1,714) 110
2000 103 1,897 (1,890) 110
1. Deduction for purposes for which reserve was created.
Page 44 of 48
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.
3/26/03 /S/ Melvin L. Adams
- ------------------------- ----------------------------
Date Melvin L. Adams
President & Chief Executive Officer
3/26/03 /s/ Richard L. Schreck
- ------------------------- ----------------------------
Date Richard L. Schreck
Secretary/Treasurer and Chief
Financial Officer
3/26/03 /s/ Lawrence Jones
- ------------------------- ----------------------------
Date Lawrence Jones
Director
3/26/03 /s/ Dean T. DuCray
- ------------------------- ---------------------------
Date Dean T. DuCray
Director
3/26/03 /s/ James A. Urry
- ------------------------- ----------------------------
Date James A. Urry
Director
3/26/03 /s/ George D. Wyers
- ------------------------- ---------------------------
Date George D. Wyers
Director
Page 45 of 48
CERTIFICATION
I, Melvin L. Adams, President and Chief Executive Officer of Airxcel, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Airxcel, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 3/26/03
By: /S/ Melvin L. Adams
------------------
Melvin L. Adams
President and Chief Executive Officer
Page 46 of 48
CERTIFICATION
I, Richard L. Schreck, Secretary/Treasurer and Chief Financial Officer of
Airxcel, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Airxcel, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 3/26/03
By: /S/ Richard L. Schreck
----------------------
Richard L. Schreck
Secretary/Treasurer and Chief Financial Officer
Page 47 of 48