Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(see note below)
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
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)
Not applicable
(Former name, former address and former fiscal year,
if changed, since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. YES XX NO
____ ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
1,000 shares of Common Stock as of March 31, 2004
Note: This information is provided solely to comply with the obligation
contained in the indenture agreement governing the Company's Senior Subordinated
Notes.
1
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRXCEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, 2004 December 31, 2003
------------------ -----------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 402 $ 33
Accounts receivable, net of allowances for doubtful accounts
of $585 and $550, in 2004 and 2003, respectively 18,220 13,472
Inventories 21,138 19,811
Other current assets 2,586 2,942
-------- --------
Total current assets 42,346 36,258
-------- --------
Deferred income taxes 1,995 2,233
Property, plant and equipment, net 15,586 15,906
Loan financing costs, net 1,465 1,583
Other identifiable intangible assets, net 1,587 1,645
Goodwill and other indefinite lived intangible assets 15,873 15,873
Notes receivable from Holdings 3,447 3,447
-------- --------
Total assets $ 82,299 $ 76,945
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 68 $ 64
Cash overdraft 1,364 --
Accounts payable 11,097 7,021
Warranty reserve 2,200 2,186
Accrued interest 3,709 1,243
Accrued payroll 1,979 2,620
Accrued expenses and other current liabilities 2,858 3,017
-------- --------
Total current liabilities 23,275 16,151
-------- --------
Pension liability 2,100 2,394
Long-term debt, net of current portion 92,065 94,884
Commitments and contingencies
Stockholder's equity (deficiency):
Common stock 1 1
Additional paid-in capital 27,322 27,322
Accumulated deficit (61,048) (62,391)
Accumulated other comprehensive loss (1,416) (1,416)
-------- --------
Total stockholder's equity (deficiency) (35,141) (36,484)
-------- --------
Total liabilities and stockholder's equity (deficiency) $ 82,299 $ 76,945
======== ========
See accompanying notes.
2
AIRXCEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
March 31, 2004 March 31, 2003
-------------- --------------
Net sales $43,907 $39,421
Cost of sales 34,808 31,515
------- -------
Gross profit 9,099 7,906
Selling, general and administrative expense 4,261 4,115
------- -------
Income from operations 4,838 3,791
Interest expense, net 2,631 2,728
Other expense, net 26 11
------- -------
Income before income tax expense 2,181 1,052
Income tax expense 838 408
------- -------
Net income $ 1,343 $ 644
======= =======
See accompanying notes.
3
AIRXCEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
March 31, 2004 March 31, 2003
-------------- --------------
Cash flows from operating activities:
Net income $ 1,343 $ 644
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 759 765
Amortization of financing costs 118 108
Deferred income taxes 838 408
Provision for doubtful accounts 16 49
Loss on disposition of property, plant and equipment 5 --
Changes in operating assets and liabilities:
Accounts receivable (4,764) (5,123)
Inventories (1,327) (843)
Other assets (244) (282)
Accounts payable 4,076 (338)
Accrued expenses and other liabilities 1,386 959
-------- --------
Net cash provided by (used in) operating activities 2,206 (3,653)
-------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment -- 33
Capital expenditures (374) (155)
Purchase of notes receivable from Holdings -- (3,448)
Other (12) --
-------- --------
Net cash used in investing activities (386) (3,570)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 36,276 39,657
Principal payments on long-term debt (39,091) (34,701)
Cash overdraft 1,364 2,390
Financing costs incurred -- (92)
Dividend to parent -- (5)
-------- --------
Net cash provided by (used in) financing activities (1,451) 7,249
-------- --------
Net increase in cash and cash equivalents 369 26
Cash and cash equivalents, beginning of period 33 179
-------- --------
Cash and cash equivalents, end of period $ 402 $ 205
======== ========
See accompanying notes.
4
AIRXCEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(in thousands)
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements have not been
audited but reflect normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the Company's financial
position and results of operations and cash flows for the interim periods
presented. The year-end condensed consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the United States. These interim
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes therein for the fiscal year ended December
31, 2003 included in the Company's Form 10-K filed with the Securities and
Exchange Commission on March 26, 2004. The results of operations for any interim
period are not necessarily indicative of results for the full year or for any
subsequent quarter.
2. ORGANIZATION AND BUSINESS:
Airxcel, Inc. (the "Company") is a wholly-owned subsidiary of Airxcel
Holdings Corporation (Holdings); formerly known as RV Holdings Corporation. The
Company is a diversified designer, manufacturer and marketer of air
conditioners, furnaces, water heaters, cooking appliances and low-voltage
refrigeration compressors for the recreation vehicle industry, and wall mount
air conditioners, environmental control units and heat pumps for the heating,
ventilating and air conditioning industry in the United States, Canada and
certain international markets. The recreation vehicle industry is supplied by
its RV Products division and Suburban Manufacturing Company while the heating,
ventilating and air conditioning industry is supplied by the Marvair division,
formerly Crispaire division. 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.
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.
5
3. INVENTORIES:
Inventory consists of the following:
March 31, 2004 December 31, 2003
-------------- -----------------
Raw materials $10,115 $ 8,744
Work-in-process 2,153 2,013
Finished goods 8,870 9,054
------- -------
$21,138 $19,811
======= =======
4. NOTES RECEIVABLE FROM HOLDINGS:
On February 19, 2003, the Company purchased certain notes from the holders
for an aggregate purchase price of $3,447 due from Holdings which mature
November 2008. Although the Company may determine to distribute the 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.
5. WARRANTY RESERVE:
The Company offers a one to five year warranty for its products. The
specific terms and conditions of those warranties vary depending upon the
product sold. 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. The Company periodically assesses the adequacy of its recorded product
warranty obligation and adjusts the amounts as necessary.
Changes in the Company's product warranty liability during the period are as follows:
Balance, beginning of period $ 2,186
Warranties provided for during the period 575
Settlements made during the period (572)
Changes in liability for pre-existing warranties
during the period, including expirations 11
-------
Balance, end of period $ 2,200
=======
6. CONTINGENCY:
On January 6, 2004, the Company entered into a letter of credit totaling
$1,210. On March 5, 2004 the Company amended an existing letter of credit to
decrease the amount to $1,064. The letters of credit obligate the Company to
make payment in the event of default on the agreements with the insurance
companies 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 these instruments is zero.
6
7. BENEFIT PLAN
The components of net periodic pension benefit for the three months ended
March 31, 2004 and 2003 for Suburban Manufacturing Company Retirement Plan
("Plan 1") and the Suburban Manufacturing Company Retirement Plan for Bargaining
Employees ("Plan 2") were:
March 31, 2004 March 31, 2003
------------------------------ -----------------------------
Plan 1 Plan 2 Plan 1 Plan 2
-------------- ------------- ------------ --------------
Service cost $ 57 $ 90 $ 46 $ 69
Interest cost 69 54 63 47
Expected return on plan assets (60) (46) (49) (40)
Amortization of net loss 25 24 16 17
Expected employee contributions (8) (16) (8) (14)
----- ----- ----- -----
Net periodic benefit cost $ 83 $ 106 $ 68 $ 79
===== ===== ===== =====
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
Net sales. Net sales increased 11.4% from $39.4 million in 2003 to $43.9
million in 2004. The sales increase is primarily due to volume growth within the
RV industry.
Gross Profit. Gross profit increased 15.2% from $7.9 million (20% of net
sales) in 2003 to $9.1 million (21% of net sales) in 2004. The increase was
principally due to increased sales volume and favorable changes in the product
mix.
Selling, general and administrative expense (including amortization of
intangible assets and computer software). Selling, general and administrative
expense increased 4.9% from $4.1 million in 2003 (10% of net sales) to $4.3
million in 2004 (10% of net sales), primarily due to increased promotional
expenses due to increased marketing efforts and increased sales commissions as a
result of increased sales.
Interest expense. Interest expense decreased 3.7% from $2.7 million in
2003 to $2.6 million in 2004 primarily due to reductions in average long term
borrowings outstanding resulting from improved operating cash flows and
decreased average interest rates on outstanding borrowings.
Income tax expense. Income tax expense increased from $.4 million in 2003
to $.8 million in 2004 primarily due to increased gross profit as described
above.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2004, the Company generated $2.2
million in net cash flow from operating activities compared to a use of cash in
operating activities of $3.7 million in the three months ended March 31, 2003.
The improvement was primarily the result of increased profitability and improved
working capital management, including increased accounts payable and accrued
expenses and other liabilities, as compared to the prior period. Capital
expenditures totaled $.4 million for three months ended March 31, 2004 compared
to $.2 million for the same period in 2003.
On February 19, 2003, the Company purchased certain notes from the holders
for an aggregate purchase price of $3.4 million due from Holdings which mature
November 2008. Although the Company may determine to distribute the 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.
The outstanding borrowing on the Company's credit facility at March 31,
2004 is $1.9 million which is approximately $2.8 million less than that
outstanding at December 31, 2003. The net repayment was made possible from
improved operating cash flows in 2004. The net borrowing of approximately $5.0
million during the three months ended March 31, 2003 was necessary to fund
working capital demands and lower operating cash flows.
8
Covenants under the Company's credit facility with the bank restrict the
Company's ability, subject to certain exceptions, to dispose of assets, incur
additional indebtedness, guarantee obligations, prepay other indebtedness or
amend other debt instruments, make distributions or pay dividends, redeem or
repurchase capital stock, create liens on assets, make acquisitions, engage in
mergers or consolidations, and change the business conducted by the Company. In
addition, the Company is required to maintain compliance with a fixed charge
coverage ratio and maintain a minimum effective capital balance. The Company is
in compliance with these ratios at March 31, 2004. 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 2004. 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 amendment or waiver
would be able to be obtained.
The Company meets its working capital, capital equipment requirements and
cash requirements with funds generated internally and funds from agreements with
a bank. Management currently expects its cash on hand, funds from operations and
borrowings available under existing credit facilities to be sufficient to cover
both short-term and long-term operating requirements.
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.
CERTAIN IMPORTANT FACTORS
Except for the historical financial information contained herein, this
Form 10-Q contains certain forward-looking statements. For this purpose, any
statements contained in this Form 10-Q 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, prevailing interest rates or
fuel prices, or the occurrence of unusually severe weather conditions, that can
affect both the purchase and usage of recreational vehicles, which, in turn,
affects purchases by consumers of the products that the Company sells.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk on variable rate financial instruments: The Company maintains
a $25 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 outstanding borrowings under the credit facility of $1.9 million as of
March 31, 2004 and an average interest rate of 3.6% per annum, a 1% increase in
market interest rates would increase interest expense and decrease earnings
before income taxes by approximately $19,000 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.
10
ITEM 4. CONTROLS AND PROCEDURES
(a) Our chief executive officer and chief financial officer have reviewed and
evaluated the Company's disclosure controls and procedures within 90 days of the
filing date of this Quarterly Report. Based on such review and evaluation, the
officers believe that the disclosure controls and procedures are designed
effectively to ensure that the information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, (1.) is recorded, processed, summarized and reported
within the time period specified in the SEC's rules and forms and that the
information required to be discussed by the Company in the reports that it files
and submits under the Securities Exchange Act of 1934, as amended, and (2.) is
documented and communicated to the Company's management, including the officers,
as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
11
PART 2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6 (a.) EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
ITEM 6 (b.) REPORTS ON FORM 8-K
None
12
SIGNATURES
Pursuant to the requirements 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.
5-7-04 /s/ Melvin L. Adams
- --------------------- --------------------------------------------
Date Melvin L. Adams
President and Chief Executive Officer
5-7-04 /s/ Richard L. Schreck
- --------------------- --------------------------------------------
Date Richard L. Schreck
Secretary/Treasurer and
Chief Financial Officer
13