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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, 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)
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 41
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. [X]
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, 2004
DOCUMENTS INCORPORATED BY REFERENCE
The Airxcel, Inc. Registration Statement on Form S-4 Registration Statement
under the Securities Act of 1933, portions of which are incorporated by
reference into Part IV.
Page 2 of 41
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 its subsidiary, 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 entity and
operating assets.
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 start-up manufacturer of low-voltage compressor
refrigerators for the RV industry and other applications utilizing small
refrigerators.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in the heating, ventilation, and air conditioning
(HVAC) 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
RVP is engaged in designing, manufacturing and marketing recreation
vehicle air conditioning equipment. Suburban designs and manufacturers heating,
water heating, and cooking appliances for the recreation vehicle industry and
other specialty products for the HVAC industry. Marvair designs manufactures and
markets specialty wall mount air conditioners, packaged terminal air
conditioners with gas heat, environmental control units, heat pumps for the HVAC
industry and marine reverse cycle air conditioners.
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(R)-Mach(R)" 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 has 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 conditioner needs for each of the
past twelve 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 quiet
operation and long 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
Page 3 of 41
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
appliances to Coast and a number of other aftermarket distributors. As in its
air conditioning products, the Company believes its Suburban gas appliances
offer a greater value and superior performance than those products produced by
its competition. In fiscal 2004, as a percentage of Airxcel's net sales, RV
industry OEM sales represented 68%, and aftermarket sales represented 14%.
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, reverse cycle air conditioners 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, modular construction companies and pleasure yacht manufacturers.
Sales are generated through manufacturers representatives and a direct sales
force for all markets. The Company believes that it is one of the largest
providers of heating, ventilating, air conditioning, and dehumidifying equipment
for the self contained school 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, Dade 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 Fibrebond, Cellxion, Dupont and CSI. 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 Nextel, Cingular,
T-Mobile, 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. Marvair recently introduced
a reverse cycle air conditioner for pleasure yachts. Twenty six different units
are currently offered throughout the United States and Europe. Potential
customers include yacht builders and dealers for replacement sales. In fiscal
2004, sales to the telecommunication shelter industry and school industry
represented 15% of Airxcel's total net sales.
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 alternate suppliers are
available for the majority of its key components.
LIMITED USE OF COLEMAN BRAND NAME
The Company has an exclusive, long term, royalty-free license to use the
name "Coleman(R)" on certain products. Such license automatically renews
provided the Company is in compliance with all material terms of the trademark
license agreement. The Company's license to use the "Coleman(R)" brand name on a
stand-alone basis expired on April 30, 1997. As a result, the Company must use
an additional name or product name in conjunction with the "Coleman(R)" 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.
Page 4 of 41
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
Airxcel's net sales to Thor Industries, Fleetwood Enterprises, Forest
River, Winnebago Industries, Coast Distribution, and Jayco, its largest
customers, accounted for approximately 49% of the Company's net sales for 2004.
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
may be terminated at the option of either party. A significant decrease or
interruption in the 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, 2004 there were four primary
competitors to Airxcel within the industry. The school and telecommunications
air conditioning industry is also highly competitive with three major
competitors. Although the Company competes with a number of established
companies that have greater financial, technological and marketing resources,
Airxcel believes it has a competitive advantage due to the following:
Strong Market Position in Principal Niche Markets. The Company has a large share
of the total North American RV air conditioning, heating, and water heating
market and believes it is one of the largest providers of heating, ventilating,
air conditioning, and dehumidifying equipment for the self contained classroom
market. Additionally, the Company believes it is the largest provider of
environmental control equipment to 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 RV
OEMs, major telecommunications companies and equipment manufacturers and school
districts. Airxcel has supplied leading RV OEMs such as Fleetwood, Winnebago and
Jayco substantially all of their air conditioner needs for each of the past
twelve 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 twenty one
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(R)-Mach(R)" brand name. The
"Coleman(R)" 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(R)-Mach(R) brand RV 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 gas 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(R)" name in the
telecommunication shelter market and its "Scholar(TM)", "Classic(TM)" and
"GreenPac(TM)" 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
Page 5 of 41
methods. In addition, Marvair attained its ISO-9001 certification during 1998.
In early 2002, Marvair achieved its ISO 9001-2000 certification.
Extensive Distribution Network and Experienced Sales Force. The Company believes
the members of 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, include some of the most experienced sales people in
the RV industry. In addition, the Company provides Coast, the largest wholesale
distributor of replacement parts, supplies, and RV accessories, serving more
than 15,000 customers throughout the U.S. and Canada, with 100% of its RV air
conditioning products. Airxcel believes that Coast provides broad aftermarket
coverage and distribution capabilities. Sales representatives outside the
recreation vehicle industry focus on the U.S. telecommunications, school, marine
and construction industries as well as international sales. In addition,
independent sales representatives actively market products, particularly to
school districts and marine applications 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, 2004, the Company had 864 employees of which 421 are
included under a bargaining agreement which expires October 6, 2006.
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
Wichita, Kansas 50,000 Leased
Wichita, Kansas 153,000 Owned
ITEM 3. LEGAL PROCEEDINGS
During September 2004, the Company agreed to settle a pending lawsuit with
an individual and acquire a non-exclusive license under the individual's patent.
The Company paid a license fee associated with the patent and will pay a one
dollar royalty for each licensed product sold by the Company during the life of
the patent. The license fee is included in selling, general, and administrative
expense in the accompanying 2004 consolidated statement of operations. No
current product of the Company requires the payment of the one dollar royalty,
and no royalty is due for any previously sold product.
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 2004.
Page 6 of 41
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)
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Net sales $ 184,418 $ 161,213 $ 159,111 $ 145,144 $ 177,896
Cost of goods sold 149,436 129,073 129,693 117,867 145,369
--------- --------- --------- --------- ---------
Gross profit 34,982 32,140 29,418 27,277 32,527
Selling, general and administrative expenses 16,742 15,785 16,462 15,628 16,681
Income from operations 17,965 16,064 11,919 13,998 12,141
Interest expense 10,214 10,732 10,789 11,436 11,944
Income from continuing operations before
income taxes, extraordinary item and cumulative
effect of change in accounting principle 7,239 5,191 945 2,656 164
Cumulative effect of change in accounting
principle -- -- (19,718) -- --
Net income (loss) 5,127 3,176 (19,079) 1,671 (169)
OTHER FINANCIAL INFORMATION:
Gross margin percentage 19.0% 19.9% 18.5% 18.8% 18.3%
Cash provided by operating activities $ 8,273 $ 7,376 $ 8,770 $ 6,515 $ 7,522
Cash used in investing activities (1,860) (4,458) (2,587) (2,219) (4,980)
Cash used in financing activities (6,207) (3,064) (6,587) (3,885) (2,495)
Depreciation and amortization (2) 3,074 3,060 3,385 5,246 5,931
Capital expenditures 1,816 1,059 2,498 2,314 3,125
OTHER DATA:
Adjusted EBITDA (1) $ 21,039 $ 19,124 $ 15,304 $ 19,244 $ 18,072
Adjusted EBITDA margin percentage 11.4% 11.9% 9.6% 13.3% 10.2%
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (3) $ 21,938 $ 20,107 $ 20,136 $ 21,499 $ 18,554
Total assets (4) 75,816 73,498 79,424 104,586 116,960
Total debt 89,160 94,948 97,914 104,501 107,338
Total stockholders' equity (deficiency) (4) (34,847) (39,931) (37,753) (17,724) (19,109)
RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES
TO ADJUSTED EBITDA
Net cash provided by operating activities $ 8,273 $ 7,376 $ 8,770 $ 6,515 $ 7,522
Interest expense, exclusive of amortization of
loan financing costs 9,735 10,266 10,356 11,004 11,432
Other nonoperating expense, exclusive of loss
on disposition of assets 448 29 95 59 21
Tax effects related to recovery on disposal of Faulkner
Manufacturing -- -- 38 49 174
Impairment write offs -- -- (29,913) -- --
Cumulative effect of change in accounting principle -- -- 19,718 -- --
Premium on bond repurchase (367) -- -- -- --
Deferred income taxes (289) (1,681) 8,686 (1,619) 652
Income tax expense from continuing operations 2,112 2,015 368 1,064 126
Provision for bad debts (38) (213) (25) 20 (271)
Net change in working capital accounts 1,165 1,332 (2,789) 2,152 (1,584)
--------- --------- --------- --------- ---------
Adjusted EBITDA $ 21,039 $ 19,124 $ 15,304 $ 19,244 $ 18,072
========= ========= ========= ========= =========
- ----------
(1) Adjusted EBITDA, as calculated by the Company, in the above table may not
be comparable to the EBITDA or similarly titled measures used by other
companies. Airxcel has included information concerning Adjusted EBITDA
because it is relevant for covenant analysis under the Indenture, which
defines Adjusted EBITDA as set forth above for
Page 7 of 41
the periods shown, and is presented because it is used by certain
investors as a measure of a company's ability to service debt.
Adjusted 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 accounting principles
generally accepted in the United States or as a measure of a
company's profitability or liquidity.
(2) Excludes depreciation and amortization related to the discontinued
Faulkner manufacturing division.
(3) Working capital represents current assets less current liabilities,
including net liabilities of the discontinued Faulkner manufacturing
division of $100 and $228 as of December 31, 2001 and 2000,
respectively.
(4) Reflects the reclassification of the $3,447 note receivable from
Holdings on the consolidated balance sheet to stockholder's equity
(deficiency) at December 31, 2003.
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. The Company continuously 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.
Revenues and the related direct expenses associated with HVAC and
appliance related product sales are recognized, based on agreed-upon prices,
terms and conditions, when products are shipped. Customers are subjected to
credit verification prior to product shipment to ensure that collectibility is
reasonably assured. The Company establishes an allowance for doubtful accounts
to reduce its receivables to their net realizable value based on payor mix, the
agings of the receivables and historical collection experience.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" on January 1, 2002. This 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 as of
the January 1, 2002 date of adoption, 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
$19,718,000, which was recorded as a cumulative effect of a change in accounting
principle in the accompanying 2002 consolidated statement of operations. Annual
reviews for impairment performed by the Company in the fourth quarters of 2002,
2003, and 2004 indicated no further impairment of goodwill or other indefinite
lived assets.
The Company adopted SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" as of January 1, 2002. 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 application of this standard has not had a material effect on the
consolidated financial position, results of operations or cash flows for any
period since adoption.
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.
Page 8 of 41
At December 31, 2004, the warranty reserve balance was $2.7 million. Should
actual product failure rates differ from the Company's estimates, a revision to
the warranty obligation would be required.
The Company reserves for slow moving and 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, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Net Sales. Net sales increased 14.4% from $161.2 million in 2003 to $184.4
million in 2004. Approximately 62% of the net sales increase was due to volume
growth in HVAC related sales to OEM customers within the RV industry. Increased
appliance related sales volume within the RV industry accounted for
approximately 24% of the net sales increase, while the remaining increase is
attributable to increased HVAC sales volume within the telecommunication
industry. The effects of pricing changes on net sales were not significant
during the year.
Gross Profit. Gross profit increased 9.0% from $32.1 million (20% of net
sales) in 2003 to $35.0 million (19% of net sales) in 2004. Substantially all
(approximately 97%) of the increase was attributable to the effects of higher
sales volume with minimal effects from pricing increases. The decrease in gross
profit percentage is due to $3.0 million of higher commodity prices for key raw
materials such as steel, aluminum and copper of which $1.1 million was passed on
to customers through price increases.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses increased 5.6% from $16.1 million (10% of net sales) in 2003 to $17.0
million (9% of net sales) in 2004 primarily due to increased incentive
compensation of approximately $.9 million as a result of the increased sales and
profits, while maintaining other fixed costs at historical levels.
Interest Expense. Interest expense decreased 4.7% from $10.7 million in
2003 to $10.2 million in 2004 primarily due to the repurchase of $10 million of
the principal amount of Senior Subordinated Notes in August 2004, thus reducing
the average long term borrowings outstanding.
Premium on bond repurchase. Premium on bond repurchase was $0.4 million in
2004 due to the bond premium associated with the repurchase of $10 million of
the principal amount of Senior Subordinated Notes in August 2004.
Adjusted EBITDA. Adjusted EBITDA was $19.1 million in 2003 and $21.0
million in 2004. The increase is primarily due to the increased gross profit
offset by increased selling, general and administrative expenses as described
above.
Income from continuing operations before income tax expense and cumulative
effect of change in accounting principle. Income from continuing operations
before income tax expense and cumulative effect of change in accounting
principle increased from $5.2 million in 2003 to $7.2 million in 2004 primarily
due to the increased gross profit offset by increased selling, general and
administrative expense as described above.
Income tax expense. Income tax expense increased from $2.0 million in 2003
to $2.1 million in 2004, primarily due to the $2.0 million increase in income
before income taxes in 2004 discussed above, offset by a decrease in the
effective income tax rate from 38.8% in 2003 to 34.0% in 2004. This decrease was
due to the effects of certain enterprise zone tax credits amounting to $0.3
million and other state income tax reductions in 2004.
Net income. Net income improved from $3.2 million in 2003 to $5.1 million
in 2004 primarily as a result of the conditions resulting in the increased
income from continuing operations as described above, partially offset by the
increase in income taxes related to the increased pretax profits in 2004.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Net Sales. Net sales increased 1.3% from $159.1 million in 2002 to $161.2
million in 2003. Net sales increased principally due to volume growth in sales
related to OEM and Aftermarket customers within the RV industry. The effects of
pricing changes on net sales were not significant during the year.
Page 9 of 41
Gross Profit. Gross profit increased 9.2% from $29.4 million (19% of net
sales) in 2002 to $32.1 million (20% of net sales) in 2003. Approximately 80% of
the increase was due to material cost reductions obtained from certain vendors
and improved production efficiencies, with the remainder of the increase
attributable to the effects of higher sales volume discussed above. The improved
gross profit percentage is due to the effect of the material cost reductions and
production efficiencies on slightly increased sales.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses decreased 8.0% from $17.5 million (11% of net sales) in 2002 to $16.1
million (10% of net sales) in 2003. Approximately $0.8 million of the decrease
is attributable to decreased amortization expense related to intangible assets
becoming fully amortized. The remaining decrease is due to efforts to reduce
various fixed costs, such as incentive compensation, as well as reduced sales
commissions attributed to the slight decrease in sales volume within the school
and telecommunication industry.
Interest Expense. Interest expense decreased 0.5% from $10.8 million in
2002 to $10.7 million in 2003 primarily due to reductions in average long term
borrowings outstanding resulting from positive operating cash flows, and
decreased average interest rates on outstanding borrowings.
Adjusted EBITDA. Adjusted EBITDA was $15.3 million in 2002 and $19.1
million in 2003. The increase is primarily due to the increased gross profit and
decreased selling, general and administrative expenses as described above.
Income from continuing operations before income tax expense and cumulative
effect of change in accounting principle. Income from continuing operations
before income tax expense and cumulative effect of change in accounting
principle increased from $0.9 million in 2002 to $5.2 million in 2003 primarily
due to the increased gross profit and decreased selling, general and
administrative expense as described above.
Cumulative effect of change in accounting principle. Cumulative effect of
change in accounting principle decreased as a result of the adoption in 2002 of
SFAS No. 142, and the $19.7 million in impairment charges recorded in 2002, as
further discussed in Note 2(g) of the notes to the consolidated financial
statements.
Income tax expense. Income tax expense increased from $0.4 million in 2002
to $2.0 million in 2003, primarily due to the $4.3 million increase in income
before income taxes in 2003 discussed above. The effective income tax rate
remained substantially unchanged from 38.9% in 2002 to 38.8% in 2003.
Net income (loss). Net income (loss) improved from a net loss of $19.1
million in 2002 to a net income of $3.2 million in 2003 primarily as a result of
the $19.7 million cumulative effect of change in accounting principle recorded
in 2002, with no impairment losses recorded in 2003, and the conditions
resulting in the increased income from continuing operations as described above,
partially offset by the $1.6 million increase in income taxes related to the
increased pretax profits in 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $8.3 million in net cash flow from operating
activities for the year ended December 31, 2004 compared to $7.4 million for
2003, the increase being primarily the result of higher net income in 2004,
partially offset by the effects of higher income tax payments in 2004 and
increased working capital investment to support increased sales.
Capital expenditures were $1.8 million, $1.1 million, and $2.5 million for
the years ended December 31, 2004, 2003, and 2002, respectively. The
expenditures include the normal replacement of machinery, equipment and tooling
for new products and existing product improvements. Capital expenditures for
2005 are expected to be $2.1 million.
The Company's revolving credit facility with the bank was amended August
6, 2004 to extend the maturity date to March 31, 2007. The revolving credit
facility is limited to the lessor of $25 million or the sum of 85% of net
accounts receivable and 60% of net inventories. The outstanding borrowing under
the revolving credit facility at December 31, 2004 is $9.0 million which is
approximately $4.3 million more than that outstanding at December 31,
Page 10 of 41
2003, the increase resulting from borrowings utilized to redeem $10 million in
principal amount of the Senior Subordinated Notes offset by the effects of
improved operating cash flows in 2004. Interest on the revolving credit facility
is based on the lower of either the bank's base rate or LIBOR plus 2% (4.41%
combined rate at December 31, 2004).
In addition to the revolving credit facility, the Company has Senior
Subordinated Notes which mature on November 15, 2007. On August 9, 2004, the
Company redeemed $10 million of the principal amount of Senior Subordinated
Notes at a redemption price of 103.667% plus accrued and unpaid interest
totaling $10.6 million. The remaining $80 million in notes outstanding at
December 31, 2004 bear interest at 11%, payable semiannually in May and
November.
The Company is a wholly-owned subsidiary of 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 8,923,748 shares of $1 par value Series A and Series
B exchangeable preferred stock outstanding as of December 31, 2004. The
preferred stock which is exchangeable at the option of Holdings 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 $27.8 million as
of December 31, 2004. 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 $12.6 million as of December
31, 2004. 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 $10.3 million as of
December 31, 2004. 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. This $3.4
million note receivable has been reported within stockholder's equity
(deficiency) on the accompanying consolidated balance sheets.
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.
The following table summarizes all obligations of the Company at December 31,
2004:
Less than 1 - 3 3 - 5 More than
Total 1 year Years Years 5 Years
----------- ---------- --------- ------ ------
Long-term debt $ 89,093 $ 47 $ 89,046 $ -- $ --
Estimated future interest payments on
long-term debt 26,201 9,202 16,999 -- --
Capital lease obligations 67 25 42 -- --
Estimated future interest payments on
capital lease obligations 5 3 2 -- --
Operating leases 2,048 61 9 706 537 186
Estimated future interest payments on long-term debt are calculated based
on the stated interest rate and scheduled principal and interest payments as of
December 31, 2004. The future interest payment on the revolving
Page 11 of 41
credit facility is calculated based on principal balance as of December 31, 2004
and the interest rate in effect at December 31, 2004.
With respect to off-balance sheet arrangements, the Company does not
guarantee and is not required to fund any of the obligations of Holdings. The
aggregate obligations of Holdings under its various debt and equity issuances
are, however, disclosed in the Form 10-K, but they are not obligations of the
Company.
Covenants under the Company's revolving 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 of 1.00 and maintain a minimum effective capital balance (defined
as accumulated deficit plus the $80 million in senior subordinated notes
payable) of $36 million.
The Company was in compliance with these ratios at December 31, 2004 and
2003. The Company anticipates that they will continue to comply in 2005 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 2005. 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 will be obtained. In the event that a
waiver cannot be obtained, the Company would be required to refinance the debt
or would be in default of the credit agreement which, in turn, could have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
The revolving credit facility also contains a subjective acceleration
clause but does not require a lock-box or other account by which the bank can
apply cash receipts against the revolver balance unless an event of default
occurs. As such, amounts outstanding under this revolving credit facility are
classified as long-term liabilities on the accompanying consolidated balance
sheets, as the application of the subjective acceleration is not anticipated.
The revolving credit facility is collateralized by accounts receivable,
equipment, general intangibles, inventory, and investment property.
Certain covenants under the $80 million Indenture must be met in the event
the Company incurs any Indebtedness (including Acquired Indebtedness) except for
Permitted Indebtedness, as defined in the Indenture agreement as of November 10,
1997. In such event, the Company must meet a Consolidated Coverage Ratio greater
than 2.25. The calculation of Consolidated Coverage Ratio is defined as Adjusted
EBITDA divided by interest expense. At December 31, 2004, no Indebtedness
requiring such covenant compliance was outstanding. The Company anticipates
that, in the event the Company incurred any Indebtedness, as defined by the
Indenture agreement, it will be in compliance with the financial covenant. The
possibility exists that the covenant 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 covenant; however, there can be no assurance that such
amendment or waiver will be obtained. In the event that a waiver cannot be
obtained, the Company would be required to refinance the debt or would be in
default of the Indenture agreement which, in turn, could have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
The Company meets its working capital, capital equipment requirements and
cash requirements with funds generated internally and funds from agreements with
a bank. Management currently expects its cash on hand, funds from operations and
borrowings available under existing credit facilities to be sufficient to cover
both short-term and long-term operating requirements. However, this is dependent
upon the future performance of the Company and its subsidiaries which, in turn,
is subject to general economic conditions and to financial, business and other
factors, including factors beyond the Company's control.
The Company did not have any other relationships with unconsolidated
entities or financial partnerships, such entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As such,
Page 12 of 41
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 1, 2005 the Company amended two existing letters of credit.
One letter of credit was amended which decreased the amount to $0.4 million.
Another letter of credit was amended which increased the amount to $1.9 million.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 151, Inventory Costs,
which amends previous guidance to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage).
This Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. The provisions of this Statement shall be effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The Company
does not expect the adoption of this statement to have a material impact on its
consolidated financial statements.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R, which revised
SFAS No. 123 Accounting for Stock-Based Compensation. This Statement requires
that the cost resulting from all share-based payment transactions be recognized
in the financial statements. The provisions of this Statement shall be effective
for the Company for the first interim report period that begins after June 15,
2005. The Company does not expect this statement to have a material impact on
its consolidated financial statements at the date of adoption because no stock
options are currently outstanding. If stock options are issued in future
periods, the cost of those would be expensed in accordance with the provisions
of SFAS No. 123R.
INFLATION
Results of operations have not been significantly affected by inflation
since inception. Historically, 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. During 2004, however, commodity
prices increased more rapidly than the selected price increases the Company was
able to obtain.
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 $25 million revolving 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 3.9% per annum, a
Page 13 of 41
1% increase in market interest rates would increase interest expense and
decrease earnings before income taxes by approximately $90,000 annually.
Market risk on fixed-rate financial instruments: Included in long-term
debt are $80 million of 11% Senior Subordinated Notes due 2007. Increases in
market interest rates would generally cause a decrease in the fair market value
of the Notes and a decrease in market interest rates would generally cause an
increase in fair value of the Notes.
Page 14 of 41
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 sheets of Airxcel,
Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations and comprehensive income (loss),
stockholder's equity (deficiency), and cash flows for each of the three years in
the period ended December 31, 2004. Our audits also included the 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 and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (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
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also 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.
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, 2004 and 2003 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related 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.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
February 11, 2005
Page 15 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 239 $ 33
Accounts receivable, net of allowances for doubtful
accounts of $399 and $550 in 2004 and 2003, respectively 12,868 13,472
Inventory 24,339 19,811
Prepaid expenses and other current assets 564 409
Deferred income taxes 2,626 2,533
---------- ----------
Total current assets 40,636 36,258
---------- ----------
Deferred income taxes 1,878 2,233
Property, plant and equipment, net 14,855 15,906
Loan financing costs, net 1,156 1,583
Trademarks 2,900 2,900
Other identifiable intangible assets, net 1,418 1,645
Goodwill 12,973 12,973
---------- ----------
Total assets $ 75,816 $ 73,498
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 72 $ 64
Accounts payable 7,452 7,021
Warranty reserve 2,707 2,186
Accrued interest 1,131 1,243
Accrued payroll 3,776 2,620
Pension liability 342 494
Other accrued expenses 3,218 2,523
---------- ----------
Total current liabilities 18,698 16,151
Pension liability 2,877 2,394
Long-term debt, less current portion 89,088 94,884
---------- ----------
Total liabilities 110,663 113,429
---------- ----------
Commitments and contingencies
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 (57,264) (62,391)
Accumulated other comprehensive loss (1,459) (1,416)
Notes receivable from Holdings (3,447) (3,447)
---------- ----------
Total stockholder's equity (deficiency) (34,847) (39,931)
---------- ----------
Total liabilities and stockholder's equity (deficiency) $ 75,816 $ 73,498
========== ==========
See accompanying notes.
Page 16 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Years Ended
---------------------------------------------------
December 31, December 31, December 31,
2004 2003 2002
---------------- --------------- ---------------
Net sales $ 184,418 $ 161,213 $ 159,111
Cost of goods sold 149,436 129,073 129,693
---------------- --------------- ---------------
Gross profit 34,982 32,140 29,418
---------------- --------------- ---------------
Operating expenses:
Selling, general and administrative 16,742 15,785 16,462
Amortization of intangible assets and computer
software 275 291 1,037
---------------- --------------- ---------------
Total operating expenses 17,017 16,076 17,499
---------------- --------------- ---------------
Income from operations 17,965 16,064 11,919
Interest expense 10,214 10,732 10,789
Premium on bond repurchase 367 -- --
Other expense, net 145 141 185
---------------- --------------- ---------------
Income from continuing operations before income
tax expense and cumulative effect of change
in accounting principle 7,239 5,191 945
Income tax expense 2,112 2,015 368
---------------- --------------- --------------
Income from continuing operations before
cumulative effect of change in accounting principle 5,127 3,176 577
Discontinued operations:
Recovery on disposal of Faulkner Manufacturing
less applicable income tax expense of
$0, $0, and $38, respectively -- -- 62
---------------- --------------- ---------------
Income before cumulative effect of change in
accounting principle 5,127 3,176 639
Cumulative effect of change in accounting principle,
net of income taxes of $10,130 -- -- (19,718)
---------------- --------------- ---------------
Net income (loss) 5,127 3,176 (19,079)
Other comprehensive loss:
Minimum pension liability, net of tax of $27,
$270, and $595, respectively (43) (431) (950)
----------------- --------------- ---------------
Comprehensive income (loss) $ 5,084 $ 2,745 $ (20,029)
================ =============== ===============
See accompanying notes.
Page 17 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
(in thousands, except shares)
Accumulated Notes Total
Common Stock Additional Other Receivable Stockholder's
----------------- Paid-in Accumulated Comprehensive from Equity
Shares Amount Capital Deficit Loss Holdings (Deficiency)
------ -------- ---------- ----------- ------------- ----------- ------------
Balances, January 1, 2002 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)
Net income -- -- -- 3,176 -- -- 3,176
Dividend to parent -- -- -- (1,476) -- -- (1,476)
Minimum pension liability, net
of tax -- -- -- -- (431) -- (431)
Purchase of notes receivable
from Holdings -- -- -- -- -- (3,447) (3,447)
----- -------- ---------- ---------- ------------ ----------- ---------
Balances, December 31, 2003 1,000 1 27,322 (62,391) (1,416) (3,447) (39,931)
Net income -- -- -- 5,127 -- -- 5,127
Minimum pension liability, net
of tax -- -- -- -- (43) -- (43)
----- -------- ---------- ---------- ------------ ----------- ---------
Balances, December 31, 2004 1,000 $ 1 $ 27,322 $ (57,264) $ (1,459) $ (3,447) $ (34,847)
===== ======== ========== ========== ============ =========== =========
See accompanying notes.
Page 18 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
----------------------------------------
December 31, December 31, December 31,
2004 2003 2002
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 5,127 $ 3,176 $ (19,079)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 2,799 2,769 2,348
Amortization of intangible assets and computer
software 275 291 1,037
Amortization of loan financing costs 479 466 433
Amortization of premium on bond repurchase 367 -- --
Provision for bad debts 38 213 25
Recovery on disposal of discontinued operations -- -- (100)
Deferred income taxes 289 1,681 (8,686)
Loss on sale of property, plant and equipment 64 60 90
Loss on disposition of intangible asset -- 52 --
Impairment write off of goodwill and trademark costs -- -- 29,848
Impairment write off of patent and license agreement costs -- -- 65
Changes in operating assets and liabilities:
Accounts receivable 566 (2,514) (378)
Inventory (4,528) 2,687 (337)
Prepaid expenses and other assets (155) (22) 104
Accounts payable 431 (2,076) 1,590
Accrued expenses and other liabilities 2,521 593 1,810
--------- --------- ---------
Net cash provided by operating activities 8,273 7,376 8,770
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 4 49 3
Capital expenditures (1,816) (1,059) (2,498)
Patent and software costs incurred (48) (1) (92)
Purchase of notes receivable from Holdings -- (3,447) --
--------- --------- ---------
Net cash used in investing activities (1,860) (4,458) (2,587)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings 184,881 152,214 156,004
Principal payments on long-term debt (190,669) (155,180) (162,591)
Financing costs incurred (52) (93) --
Premium on bond repurchase (367) -- --
Dividend to parent -- (5) --
--------- --------- ---------
Net cash used in financing activities (6,207) (3,064) (6,587)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 206 (146) (404)
Cash and cash equivalents, beginning of year 33 179 583
--------- --------- ---------
Cash and cash equivalents, end of year $ 239 $ 33 $ 179
========= ========= =========
Page 19 of 41
AIRXCEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended
--------------------------------------
December 31, December 31, December 31,
2004 2003 2002
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 9,816 $10,197 $10,375
Income taxes 1,655 46 365
Cash received from income tax refunds 39 261 1,804
Supplemental disclosure of noncash investing and financing activities:
Reduction in tax basis of certain assets in connection
with the purchase of notes receivable from Holdings,
treated as dividend to parent $ -- $ 1,471 $ --
======= ======= =======
See accompanying notes.
Page 20 of 41
AIRXCEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Airxcel, Inc., formerly known as Recreation Vehicle Products, Inc. (the
"Company") is engaged in designing, manufacturing and marketing recreation
vehicle air conditioning equipment in the United States, Canada and certain
international markets. On November 10, 1997, the Company acquired substantially
all of the net assets, properties and rights and assumed certain related
liabilities of Crispaire Corporation, currently operating as Marvair
("Marvair"), a division of Airxcel, Inc., which designs, manufactures and
markets specialty wall mount air conditioners, packaged terminal air
conditioners with gas heat, environmental control units, heat pumps for the
heating, ventilating and air conditioning (HVAC) industry and marine reverse
cycle air conditioners. Marvair markets its products to companies involved in
modular construction, telecommunications, utilities, pleasure yacht
manufacturers and school districts located throughout the United States and
selected foreign markets. On March 17, 1998 the Company acquired 100% of the
outstanding stock of Suburban Manufacturing Company, formerly KODA Enterprises
Group, Inc. ("Suburban"). Suburban, a wholly-owned subsidiary is a designer and
manufacturer of heating, water heating, and cooking appliances for the
recreation vehicle industry and other specialty products for the HVAC industry.
On November 3, 2000 the Company acquired substantially all of the net assets,
properties and rights and assumed certain related liabilities of Instafreeze,
Inc. ("Insta Freeze"). The operations of Insta Freeze were consolidated into the
Company and the Insta Freeze entity was dissolved December 22, 2003. The Company
and its subsidiaries collectively sell HVAC and appliance related groups of
products, as defined by Statement of Financial Accounting Standards (SFAS) No.
131, to the RV, telecommunications and school customers, as described above.
Revenues from the sale of HVAC products, as a percentage of consolidated net
sales were 80%, 81%, and 82% in fiscal years 2004, 2003 and 2002, respectively.
Revenues from the sale of appliance related products, as a percentage of
consolidated net sales, were 20%, 19%, and 18% in fiscal years 2004, 2003, and
2002, respectively. 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 1,535,354 shares of $.01 par value common stock and 8,923,748 shares of $1
par value Series A and Series B exchangeable preferred stock outstanding as of
December 31, 2004 and 2003. The preferred stock which is exchangeable at the
option of Holdings 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 $27,819, $24,209, and $21,354 as of December 31, 2004, 2003 and
2002, 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 or cash at the election of Holdings.
Such notes, plus accrued interest totaled $12,619, $10,998, and $9,589 as of
December 31, 2004, 2003 and 2002, respectively.
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
Page 21 of 41
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.
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 $10,329, $9,259 and $8,299
as of December 31, 2004, 2003 and 2002, respectively. On February 19, 2003, the
Company purchased the notes originally issued by Holdings from the holders for
an aggregate purchase price of $3,447. These notes, which are reported at cost
as notes receivable from Holdings on the accompanying consolidated balance
sheets, mature November 2008. The notes receivable were reclassified in the 2003
consolidated balance sheet as a component of stockholder's equity (deficiency)
to conform to the 2004 presentation and to reflect the level of control inherent
in the Company's relationship with Holdings. 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. Pursuant
to an IRS regulation issued on August 29, 2003, the taxable income to Holdings
associated with the note purchase results in a reduction to the tax basis of
certain of the Company's assets and has been reflected in the accompanying
consolidated financial statements as a non-cash distribution to Holdings and a
decrease in deferred income tax assets.
2. SIGNIFICANT ACCOUNTING POLICIES:
a. Management's Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
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: Revenues and the related direct expenses associated
with HVAC and appliance related product sales are recognized, based upon
agreed-upon prices, terms and conditions, when products are shipped. Customers
are subjected to credit verification prior to product shipment to ensure that
collectibility is reasonably assured. The Company establishes an allowance for
doubtful accounts to reduce its receivables to their net realizable value based
on payor mix, the agings of the receivables and historical collection
experience.
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 the 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.
Page 22 of 41
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 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 as of the January 1, 2002 date of
adoption, 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. Annual reviews for impairment performed by the Company in the fourth
quarters of 2002, 2003, and 2004 indicated no further impairment of goodwill or
other indefinite lived assets.
Intangible assets, which are amortized on a straight-line basis over their
estimated economic lives, are as follows:
Amortization December 31, December 31,
Period 2004 2003
------------- ------------ ------------
Intangible assets subject to amortization:
Gross carrying amount:
Computer software 5 years $ 754 $ 712
Tradename 50 years 1,454 1,454
Patents 5 - 7 years 3,712 3,706
License agreements 10 years 400 400
------------ ------------
Subtotal 6,320 6,272
Accumulated amortization:
Computer software $ 701 $ 587
Tradename 397 367
Patent 3,634 3,543
License agreements 170 130
------------ ------------
Subtotal 4,902 4,627
------------ ------------
Net intangible assets subject to amortization $ 1,418 $ 1,645
============ ============
Page 23 of 41
Intangible assets not subject to amortization:
Goodwill $ 12,973 $ 12,973
Trademarks 2,900 2,900
------------ ------------
$ 15,873 $ 15,873
============ ============
Amortization of finite lived intangible assets for the years ended
December 31, 2004, 2003 and 2002 was $275, $291, and $829, respectively.
Amortization of finite lived intangible assets for the succeeding years, as of
December 31, 2004, is expected to be $129 in 2005, $95 in 2006, $79 in 2007, $78
in 2008, and $78 in 2009.
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 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. 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. No impairment charges were
recorded in 2004 and 2003.
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 are provided for in the accompanying
consolidated financial statements and historically have been insignificant. The
Company's ten largest customers accounted for approximately 58%, 57% and 58% of
net sales for the years ended December 31, 2004, 2003 and 2002, respectively,
and approximately 44% and 38% of accounts receivable at December 31, 2004 and
2003, respectively. Sales to customers in excess of 10% of consolidated net
revenues are as follows:
December 31, December 31, December 31,
Customer 2004 2003 2002
------------ ------------ ------------
A. $ 21,944 $ 17,929 $ 18,279
B. 20,861 19,186 18,604
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 2004 and 2003 that exceeded
FDIC insurance limits by $37 and $0, 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 $165, $204, and $354 in 2004, 2003, and 2002,
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 24 of 41
n. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 2004 and 2003, excluding the $80 million and $90
million, respectively, of senior subordinated notes, approximate fair market
value. The fair value of the Company's senior subordinated notes was $80 million
at December 31, 2004 and $84.6 million at December 31, 2003 based on the quoted
market price for the same issue or similar issues. It is impracticable to
determine the fair value of the notes receivable from Holdings, which have a
carrying value of $3.4 million at December 31, 2004, except as indicated by the
$3.4 million paid by the Company to acquire the notes in an arms length
transaction with an unrelated third party on February 19, 2003. The Company has
no indication that the value has changed since that date.
o. Collective Bargaining Agreement: As of December 31, 2004, the Company
had 864 employees of which 49% were represented by a bargaining agreement that
expires October 6, 2006.
p. Reclassifications: Certain amounts in the 2003 and 2002 consolidated
financial statements and related notes have been reclassified to conform to the
2004 presentation. See Note 1.
q. Recently Issued Accounting Standards: In November 2004, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 151, Inventory Costs, which
amends previous guidance to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. The provisions of this Statement shall be effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The Company
does not expect the adoption of this statement to have a material impact on its
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R, which revised SFAS No.
123 Accounting for Stock-Based Compensation. This Statement requires that the
cost resulting from all share-based payment transactions be recognized in the
financial statements. The provisions of this Statement shall be effective for
the Company for the first interim report period that begins after June 15, 2005.
The Company does not expect this statement to have a material impact on its
consolidated financial statements at the date of adoption because no stock
options are currently outstanding. If stock options are issued in future
periods, the cost of those would be expensed in accordance with the provisions
of SFAS No. 123R.
3. SUMMARY BALANCE SHEET DATA:
Inventory consists of the following:
December 31, December 31,
2004 2003
------------ ------------
Raw materials $ 11,309 $ 8,744
Work-in-process 1,991 2,013
Finished goods 11,039 9,054
------------ ------------
$ 24,339 $ 19,811
============ ============
Property, plant and equipment, including amounts under capital leases,
consist of the following:
December 31, December 31,
2004 2003
------------ ------------
Land and land improvements $ 1,235 $ 1,222
Buildings and building improvements 8,155 8,021
Machinery and equipment 24,834 23,225
Furniture and fixtures 1,687 1,733
Construction in process 99 362
------------ ------------
36,010 34,563
Less accumulated depreciation (21,155) (18,657)
------------ ------------
Net $ 14,855 $ 15,906
============ ============
Page 25 of 41
4. 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:
December 31, 2004 December 31, 2003
----------------- -----------------
Balance at beginning of period $ 2,186 $ 1,905
Warranties issued during the period 2,313 2,095
Settlements made during the period (2,339) (2,062)
Changes in estimated liability for pre-existing warranties
during the period, including expirations 547 248
----------- -----------
Balance at end of period $ 2,707 $ 2,186
=========== ===========
5. LONG-TERM DEBT:
Long-term debt consists of the following:
December 31, December 31,
2004 2003
------------ ------------
Note payable to bank under a $25,000 revolving line of credit, maturing on
March 31, 2007, with interest at the lower of the bank's base rate or
Libor plus 2% (4.41% at December 31, 2004) payable monthly. $ 8,982 $ 4,702
Senior subordinated notes, with interest at 11% payable
semiannually on May 15 and November 15, commencing on
May 15, 1998, due November 15, 2007 80,000 90,000
Note payable to individual for land purchase, with interest
at 7.5%, due in monthly principal and interest payments
of $4 through April 1, 2007, collateralized by the land 111 154
Capital leases 67 92
------------ ------------
89,160 94,948
Current portion of long term debt (72) (64)
------------ ------------
$ 89,088 $ 94,884
============ ============
Covenants under the Company's revolving 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 of 1.00 and maintain a minimum effective capital balance (defined
as accumulated deficit plus the $80 million in senior subordinated notes
payable) of $36 million.
The Company was in compliance with these ratios at December 31, 2004 and
2003. The Company anticipates that they will continue to comply in 2005 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 2005. 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 will be obtained. In the event that a
waiver cannot be obtained, the Company would be required to refinance the debt
or would be in default of the credit agreement which, in turn, could have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
Page 26 of 41
The revolving credit facility also contains a subjective acceleration
clause but does not require a lock-box or other account by which the bank can
apply cash receipts against the revolver balance unless an event of default
occurs. As such, amounts outstanding under this revolving credit facility are
classified as long-term liabilities on the accompanying consolidated balance
sheets, as the application of the subjective acceleration is not anticipated.
The revolving credit facility is collateralized by accounts receivable,
equipment, general intangibles, inventory, and investment property.
Certain covenants under the $80 million Indenture must be met in the event
the Company incurs any Indebtedness (including Acquired Indebtedness) except for
Permitted Indebtedness, as defined in the Indenture agreement as of November 10,
1997. In such event, the Company must meet a Consolidated Coverage Ratio greater
than 2.25. The calculation of Consolidated Coverage Ratio is defined as Adjusted
EBITDA divided by interest expense. At December 31, 2004, no Indebtedness
requiring such covenant compliance was outstanding. The Company anticipates
that, in the event the Company incurred any Indebtedness, as defined by the
Indenture agreement, it will be in compliance with the financial covenant. The
possibility exists that the covenant 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 covenant; however, there can be no assurance that such
amendment or waiver will be obtained. In the event that a waiver cannot be
obtained, the Company would be required to refinance the debt or would be in
default of the Indenture agreement which, in turn, could have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
Principal maturities of long-term debt, and capital lease amortization,
based on balances outstanding at December 31, 2004 for each of the three
succeeding years are as follows:
Capital Leases
-------------------------------------------------------
Long-term Minimum Net Present
Debt Lease Payment Interest Value Total
------------- ----------------- ------------- ------------- -------------
2005 $ 47 $ 28 $ 3 $ 25 $ 72
2006 51 29 2 27 78
2007 88,995 15 -- 15 89,010
------------- ----------------- ------------- ------------- -------------
$ 89,093 $ 72 $ 5 $ 67 $ 89,160
============= ================= ============= ============= =============
Property, plant and equipment include the following amounts for capital
leases:
December 31, December 31,
2004 2003
------------ ------------
Machinery and equipment $ 200 $ 200
Furniture and fixtures 136 136
------------ ------------
336 336
Less accumulated depreciation (248) (203)
------------ ------------
Net property, plant and equipment $ 88 $ 133
============ ============
6. 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. No options have been
granted under the plan.
Page 27 of 41
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation"
as amended by SFAS No. 148 "Accounting for Stock Based Compensation-Transition
and Disclosure", 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, 2004, 2003, and 2002.
7. INCOME TAXES:
The significant components of the net deferred income tax asset recognized
in the accompanying consolidated balance sheets are as follows:
December 31, December 31,
2004 2003
------------ ------------
Deferred income tax assets
Accrued reserves and liabilities $ 3,325 $ 3,442
Intangibles 4,554 5,247
State net operating loss and tax credit carryforwards 1,139 1,112
------------ ------------
9,018 9,801
Less valuation allowance (827) (1,112)
------------ ------------
Deferred income tax assets 8,191 8,689
Deferred income tax liabilities
Depreciation (3,687) (3,923)
------------ ------------
Net deferred income tax assets 4,504 4,766
Less current deferred income taxes 2,626 2,533
------------ ------------
Total non-current deferred income taxes $ 1,878 $ 2,233
============ ============
The Company has net operating loss and tax credit carryforwards of varying
amounts related to certain state jurisdictions that aggregate approximately
$21,662 and $1.198, respectively, at December 31, 2004. If not utilized, these
operating loss and tax credit carryforwards will begin to expire in 2005 and may
be subject to certain limitations under state tax laws. Valuation allowances
have been provided to reduce the deferred tax assets to the amounts considered
more likely than not to be realized in accordance with provisions of SFAS No.
109.
The components of income tax (benefit) expense from continuing operations,
exclusive of taxes related to the discontinued operations and cumulative effect
of change in accounting principle, are as follows:
December 31, December 31, December 31,
2004 2003 2002
------------ ------------ ------------
Current $ 1,823 $ 334 $ (1,038)
Deferred 289 1,681 1,406
----------- ------------ ------------
Income tax expense $ 2,112 $ 2,015 $ 368
=========== ============ ============
Page 28 of 41
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,
2004 2003 2002
------------ ------------- ------------
Income tax expense computed by applying
the federal statutory rate $ 2,461 $ 1,763 $ 321
State income taxes, net of federal income tax
benefit 346 238 43
Enterprise zone tax credits (311) -- --
Change in valuation allowance (285) 23 (52)
Other (99) (9) 56
------------ ------------- ------------
Income tax expense from continuing operations $ 2,112 $ 2,015 $ 368
============ ============= ============
8. 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 $661, $635 and $779 for the years ended December 31, 2004,
2003 and 2002, respectively.
Commitments for future minimum lease payments under noncancellable leases
as of December 31, 2004 are as follows:
Operating
Leases
---------
2005 $ 619
2006 393
2007 313
2008 287
2009 250
2010 - 2011 186
---------
$ 2,048
=========
9. 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
division. 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,
2004, 2003 and 2002 totaled $356, $316 and $303, 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. On December 31, 2004, the
Company elected to freeze Plan 1. The Company's contribution to the defined
benefit pension plans is expected to be $342 in 2005. The actuarial measurement
dates for Plan 1 are December 31, 2004 and September 30, 2003. The actuarial
measurement dates for Plan 2 are September 30, 2004 and 2003.
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, 2004,
Page 29 of 41
2003, and 2002, a minimum pension liability adjustment of $43, $431, and $950
(net of income tax benefit of $27, $270, and $595), respectively, is included in
the accompanying consolidated financial statements.
December 31, 2004 December 31, 2003
------------------------- -------------------------
Plan 1 Plan 2 Plan 1 Plan 2
--------- --------- --------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
period $ 4,659 $ 3,641 $ 3,811 $ 2,845
Service cost 229 362 183 276
Interest cost 277 216 254 190
Benefits paid (166) (144) (96) (147)
Actuarial (gain) loss (122) (173) 2 89
Change in assumptions 237 148 505 388
Curtailment gain (295) -- -- --
--------- --------- --------- --------
Benefit obligation at end of period $ 4,819 $ 4,050 $ 4,659 $ 3,641
--------- --------- --------- --------
December 31, 2004 December 31, 2003
------------------------- -------------------------
Plan 1 Plan 2 Plan 1 Plan 2
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of period $ 2,560 $ 2,126 $ 2,279 $ 1,696
Employer contributions 410 103 140 345
Employee contributions 36 78 35 65
Actual return on plan assets 153 126 202 167
Benefits paid (166) (144) (96) (147)
--------- --------- --------- ---------
Fair value of plan assets at
end of period $ 2,993 $ 2,289 $ 2,560 $ 2,126
--------- --------- --------- ---------
Unfunded status $ 1,826 $ 1,761 $ 2,099 $ 1,515
Unrecognized net actuarial loss (1,355) (1,328) (1,549) (1,403)
Employer contribution after
measurement date -- (57) (31) (46)
Adjustment to recognize minimum
liability 1,355 1,017 1,225 1,078
--------- --------- --------- ---------
Accrued benefit cost $ 1,826 $ 1,393 $ 1,744 $ 1,144
========= ========= ========= =========
Weighted-average assumptions:
Discount rate 5.66% 5.75% 6.00% 6.00%
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%
The Company's asset allocations at December 31, 2004 and 2003, by asset category
are as follows:
December 31, 2004 December 31, 2003
------------------------- -------------------------
Plan 1 Plan 2 Plan 1 Plan 2
--------- --------- --------- ---------
Asset category
Equities 61.45% 60.15% 57.56% 57.22%
Corporate and government
securities 29.87% 33.30% 37.22% 38.82%
Money funds 8.68% 6.55% 5.22% 3.96%
--------- --------- --------- ----------
100.00% 100.00% 100.00% 100.00%
========= ========= ========= ==========
Page 30 of 41
The Company's target asset allocation range at December 31, 2004 and 2003 is as
follows:
December 31, 2004 December 31, 2003
------------------------- -------------------------
Plan 1 Plan 2 Plan 1 Plan 2
--------- --------- --------- ---------
Asset category
Equities 60% 60% 60% 60%
Fixed income 40% 40% 40% 40%
--------- --------- --------- ---------
100.00% 100.00% 100.00% 100.00%
========= ========= ========= =========
December 31, 2004 December 31, 2003 December 31, 2002
----------------------- ----------------------- -----------------------
Plan 1 Plan 2 Plan 1 Plan 2 Plan 1 Plan 2
-------- -------- -------- -------- -------- --------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 229 $ 362 $ 183 $ 276 $ 163 $ 218
Interest cost 277 216 254 190 218 164
Expected return on plan assets (241) (184) (197) (161) (208) (161)
Amortization of net loss 99 97 65 66 -- 6
Employee contributions (33) (67) (31) (57) (31) (55)
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 331 $ 424 $ 274 $ 313 $ 142 $ 172
======== ======== ======== ======== ======== ========
Benefits expected to be paid as of December 31, 2004 are as follows:
2005 $ 255
2006 265
2007 291
2008 335
2009 387
2010 - 2014 2,743
--------
$ 4,276
========
The primary investment objective of the defined benefit pension plans is
to seek and earn a total rate of return modestly greater than that provided by a
portfolio equally divided between U.S. stocks and bonds. This objective desires
to keep portfolio risk below that of common stocks but to pursue a return
greater than that provided by bonds.
The general approach in determining the long term rate of return is to use
a weighted-average of expected returns for each major asset class, based on the
target asset allocation percentages incorporated in the plan's investment
strategy. The expected returns for each major asset class are based primarily on
historical returns in the post World War II period. It is expected that future
returns over the time horizon of the plan may be slightly less than historical
returns, and therefore the actual long-term rate of return on assets assumption
is set at a slightly lower level than would be determined based on historical
returns alone.
10. 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 and 2001.
Accordingly, Faulkner is reported as a discontinued operation for the years
ended December 31, 2004, 2003 and 2002.
There were no sales and no liabilities of the Faulkner division for the
years ended December 31, 2004, 2003 and 2002.
The recovery on the disposal of Faulkner was $100 at December 31, 2002.
Page 31 of 41
11. LITIGATION:
During September 2004, the Company agreed to settle a pending lawsuit with
an individual and acquire a non-exclusive license under the individual's patent.
The Company paid a license fee associated with the patent and will pay a one
dollar royalty for each licensed product sold by the Company during the life of
the patent. The license fee is included in selling, general, and administrative
expense in the accompanying 2004 consolidated statement of operations. No
current product of the Company requires the payment of the one dollar royalty,
and no royalty is due for any previously sold product.
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.
12. SUBSEQUENT EVENT:
On February 1, 2005 the Company amended two existing letters of credit.
One letter of credit was amended which decreased the amount to $376. Another
letter of credit was amended which increased the amount to $1,931. 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9(a). 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.
Page 32 of 41
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 59 President and Chief Executive Officer, Director
Gregory G. Guinn 56 President -- RV Products
Richard L. Schreck 52 Chief Financial Officer, Secretary, Treasurer
Lonnie L. Snook 69 Vice President -- RV Manufacturing and Engineering
George D. Wyers 72 Retired, former President -- Marvair, Director
Dean T. DuCray 64 Director
Lawrence Jones 73 Director
James A. Urry 50 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
Executive 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 has been a Vice President of Airxcel since
1991 and 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.
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 of Airxcel since 1991
and responsible for Manufacturing and Engineering of RVP since 1984. Prior to
that, Mr. Snook held various positions at The Coleman Company, including
Industrial Engineer, Manager of Industrial Engineering and Production
Superintendent.
George D. Wyers. Mr. Wyers has been a director of the Company since 1997.
Mr. Wyers retired as President of the Marvair Division of Airxcel on October 31,
2000. Prior to the acquisition, he served as President and Chief Executive
Officer of Marvair, a position he held since 1988. Prior to joining Marvair, Mr.
Wyers spent twelve years as a General Manager of a leading air conditioning
equipment distributor based in Dallas, Texas.
Dean T. DuCray. Mr. DuCray has been a director of the Company since 1996.
In April 1998 Mr. DuCray retired as Chief Financial Officer and Vice President
of York International Corporation, a position held since 1987, a manufacturer of
heating and air conditioning equipment. Mr. DuCray is currently serving as a
consultant for various companies. Mr. DuCray is designated as the audit
committee financial expert and is independent since he owns less than .5% of the
Company's stock.
Lawrence Jones. Mr. Jones has been a director of the Company since 1991.
Mr. Jones retired from The Coleman Company February 1, 1994 having served as its
Chairman and CEO since 1989. Mr. Jones served as Chairman of the Executive
Committee at The Coleman Company from 1994 to 1995. From 1995 to 1997, Mr. Jones
served as consultant and Chairman of Roller Blade (in line skates) and Prince
Sports (tennis rackets). Mr. Jones retired from the Fleming Company's (food
distribution) Board of Directors on January 1, 1998.
Page 33 of 41
James A. Urry. Mr. Urry has been a director of the Company since 1996. Mr.
Urry has been with Citigroup since 1981 and currently serves as a partner of
Citigroup Venture Capital Equity Partners. He is a director of Intersil
Corporation, AMI Semiconductor, Inc. and York International Corporation.
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.
CODE OF BUSINESS CONDUCT
The Company has adopted a code of business conduct that applies to the
directors, officers, employees, representatives and agents of the Company. A
copy of this code of business conduct will be provided free of charge upon
request.
Page 34 of 41
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company is determined by the
Board of Directors of the Company. The following table sets forth information
concerning compensation received by the five most highly compensated officers of
the Company for services rendered in the fiscal year ended December 31, 2004.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------------- ------------------------
Other Annual Options/ LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Awards SAR(#) Payouts Compensation(1)
--------------------------- ---- --------- --------- ------------ ------ ------- ------- ---------------
Melvin L. Adams 2004 $ 300,000 $ 221,280 -- -- -- -- $ 19,146
President & Chief Executive Officer 2003 300,000 351,556 -- -- -- -- 18,286
2002 289,585 100,000 -- -- -- -- 17,180
Gregory G. Guinn 2004 188,340 101,520 -- -- -- -- 13,468
President - RVP 2003 180,000 212,250 -- -- -- -- 13,287
2002 176,875 67,320 -- -- -- -- 11,662
Richard L. Schreck 2004 188,340 99,576 -- -- -- -- 13,143
Chief Financial Officer, Secretary & 2003 180,000 171,746 -- -- -- -- 13,011
Treasurer 2002 176,875 75,000 -- -- -- -- 11,427
Lonnie L. Snook 2004 150,000 83,660 -- -- -- -- 13,466
Vice President - RVP Manufacturing 2003 148,334 168,004 -- -- -- -- 13,511
& Engineering 2002 140,004 57,122 -- -- -- -- 11,860
There are no other executive officers whose compensation exceeds $100,000.
- ----------
(1) The named employee 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.
Page 35 of 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to the
common and preferred equity interests of Holdings.
Common Stock Percentage of Aggregate
Beneficially Common Voting
Name of Beneficial Owner Owned Stock Power
------------------------ ------------ ------------- ---------
Citicorp Venture Capital, Ltd. ("CVC") (1) 1,196,573.55 65.04(2) 40.72%
399 Park Avenue
New York, New York 10043
Melvin L. Adams 141,637.30 7.70 13.31%
George D. Wyers 138,331.53 7.52 13.00%
Gregory G. Guinn 76,348.75 4.15 7.17%
Richard L. Schreck 76,348.75 4.15 7.17%
Lonnie L. Snook 61,533.75 3.34 5.78%
All directors and executive officers as a group
(8 persons, including those named above) 512,324.24 27.84 47.44%
- ---------
(1) Includes shares held by employees and affiliates of CVC.
(2) Includes shares of (i) voting Class A Common Stock representing 40.72% 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
On February 19, 2003, the Company purchased the notes originally issued by
Holdings from the holders for an aggregate purchase price of $3,447. These
notes, which are reported at cost as notes receivable from Holdings on the
accompanying 2004 consolidated balance sheet, 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. Pursuant to an IRS regulation issued on August 29, 2003, the taxable
income to Holdings associated with the note purchase results in a reduction to
the tax basis of certain of the Company's assets and has been reflected in the
accompanying consolidated financial statements as a non-cash distribution to
Holdings and a decrease in deferred income tax assets.
Page 36 of 41
PART IV
ITEM 14. FEES PAID TO INDEPENDENT AUDITORS
The following is a summary of fees billed by Ernst & Young LLP for audit
and other professional services during the year ended December 31:
2004 2003
-------- --------
Audit Fees:
Consists of fees and expenses billed for the audit of
Airxcel's consolidated financial statements for such
year and for the review of Airxcel's quarterly reports
on Form 10-Q $233,173 $165,869
Audit-Related Fees:
Consists of fees and expenses billed for the audits of Airxcel's
benefit plans, assistance in documenting internal control policies
and procedures over financial reporting and accounting consultations 41,825 98,642
Tax Fees:
Consists of fees billed for tax advisory services,
including compliance and planning 124,445 91,490
All Other Fees: -- --
-------- --------
Total All Fees $399,443 $356,001
======== ========
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 15
Consolidated Balance Sheets - December 31, 2004 and 2003 16
Consolidated Statements of Operations and Comprehensive
Income (Loss) - Years ended - December 31, 2004, 2003, and 2002 17
Consolidated Statements of Stockholder's Equity (Deficiency)
Years ended December 31, 2004, 2003, and 2002 18
Consolidated Statements of Cash Flows - Years ended
December 31, 2004, 2003, and 2002 19
Notes to Consolidated Financial Statements 21
(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
Page 37 of 41
(c) Exhibits
The following exhibits are incorporated by reference, except 31.1, 31.2,
and 32.1, 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.
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.
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
Page 38 of 41
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.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Page 39 of 41
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Airxcel, Inc.
March 18, 2005 /s/ Melvin L. Adams
___________________ ________________________________________
Date Melvin L. Adams
President, Chief Executive Officer & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the Registrant, and
in the capacities and on the dates indicated.
March 18, 2005 /s/ Melvin L. Adams
___________________ ________________________________________
Date Melvin L. Adams
President & Chief Executive Officer & Director
(Principal Executive Officer)
March 18, 2005 /s/ Richard L. Schreck
___________________ ________________________________________
Date Richard L. Schreck
Secretary, Treasurer and Chief
Financial Officer (Principal Financial Officer)
March 18, 2005 /s/ Lawrence Jones
___________________ ________________________________________
Date Lawrence Jones
Director
March 18, 2005 /s/ Dean T. DuCray
___________________ ________________________________________
Date Dean T. DuCray
Director
March 18, 2005 /s/ James A. Urry
___________________ ________________________________________
Date James A. Urry
Director
March 18, 2005 /s/ George D. Wyers
___________________ ________________________________________
Date George D. Wyers
Director
Page 40 of 41
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Additions Balance at
Beginning Charged to (1) End of
Description of Year Expense Deductions Year
----------- ------- ------- ---------- ----
Allowance for Doubtful Accounts
Year ended December 31,
2004 $ 550 $ 38 $ (189) $ 399
2003 314 213 23 550
2002 295 25 (6) 314
Allowance for Discounts
Year ended December 31,
2004 $ 173 $ 2,490 $ (2,518) $ 145
2003 171 2,112 (2,110) 173
2002 110 2,148 (2,087) 171
- ----------
1. Deduction for purposes for which reserve was created.
Page 41 of 41