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
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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.
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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
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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.
ITEM 2. PROPERTIES
The following table describes the principal facilities utilized by the Company for manufacturing, warehousing, and administrative purposes.
ITEM 3.
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.
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.
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PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company does not have any publicly traded equity securities.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Five Year Summary of Selected Financial Data Years Ended December 31 (in thousands)
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(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
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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.
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.
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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.
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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,
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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:
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
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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,
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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.
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
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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.
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ITEM 8.
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
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AIRXCEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
See accompanying notes.
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AIRXCEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands)
See accompanying notes.
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AIRXCEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY) (in thousands, except shares)
See accompanying notes.
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AIRXCEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
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AIRXCEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
See accompanying notes.
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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
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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.
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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:
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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:
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.
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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:
Property, plant and equipment, including amounts under capital leases, consist of the following:
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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:
5. LONG-TERM DEBT:
Long-term debt consists of the following:
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.
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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:
Property, plant and equipment include the following amounts for capital leases:
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.
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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:
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:
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Income tax expense from continuing operations differed from the amounts computed by applying the federal statutory rate to pretax income as follows:
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:
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,
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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.
The Company's asset allocations at December 31, 2004 and 2003, by asset category are as follows:
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The Company's target asset allocation range at December 31, 2004 and 2003 is as follows:
Benefits expected to be paid as of December 31, 2004 are as follows:
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.
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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.
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.
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PART III
ITEM 10.
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.
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.
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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.
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ITEM 11.
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
There are no other executive officers whose compensation exceeds $100,000.
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(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.
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ITEM 12.
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.
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(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.
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.
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PART IV
ITEM 14.
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:
ITEM 15.
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:
(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
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(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
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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.
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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
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SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
- ---------- 1. Deduction for purposes for which reserve was created.
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