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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
COMMISSION FILE NUMBER 333-43335
AIRXCEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1071795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 North Saint Francis, Wichita, Kansas 67219
(Address of principal executive offices)
(Zip Code)
(316) 832-3400
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed, since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. YES XX NO
-------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
1,000 shares of Common Stock as of September 30, 2000
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRXCEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,291 $ 125
Accounts receivable, net 17,831 15,576
Inventories 26,984 25,552
Other current assets 3,470 3,256
------------------ ---------------------
Total current assets 49,576 44,509
------------------ ---------------------
Property, plant and equipment, net 17,913 17,871
Loan financing costs, net 2,867 3,753
Non-compete agreements, net 168 443
Other identifiable intangible assets, net 28,757 29,688
Goodwill, net 21,516 21,948
------------------ ---------------------
Total assets $ 120,797 $ 118,212
================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term debt $ 110 $ 1,387
Cash overdraft 3,907 2,865
Accounts payable 9,799 7,479
Accrued interest 3,764 1,387
Accrued expenses and other current liabilities 14,341 15,610
------------------ ---------------------
Total current liabilities 31,921 28,728
------------------ ---------------------
Long-term debt, net of current maturities 103,407 105,523
Deferred income taxes 2,901 2,901
Commitments and contingencies --- ---
Stockholder's equity (deficiency):
Common Stock 1 1
Additional paid-in capital 26,946 26,946
Accumulated deficit (44,379) (45,887)
------------------- ----------------------
Total stockholder's equity (deficiency) (17,432) (18,940)
------------------- ----------------------
Total liabilities and stockholder's equity (deficiency) $ 120,797 $ 118,212
================== =====================
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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AIRXCEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 42,557 $ 47,192 $ 138,934 $ 139,489
Cost of sales 34,743 37,497 111,307 108,101
----------- ----------- ----------- -----------
Gross profit 7,814 9,695 27,627 31,388
Selling, general and administrative expense 4,572 4,701 14,854 14,887
Accrued litigation expense 150 - - - 400 7,600
----------- ----------- ----------- -----------
Income from operations 3,092 4,994 12,373 8,901
Interest expense, net 2,954 3,004 8,923 9,343
----------- ----------- ----------- -----------
Income (loss) before income tax expense
and extraordinary item 138 1,990 3,450 (442)
Income tax expense (benefit) 101 805 1,453 (24)
----------- ----------- ----------- ------------
Income (loss) before extraordinary item 37 1,185 1,997 (418)
Extraordinary loss on early extinguishment of debt,
less applicable income tax benefit of $299 - - - - 489 - -
----------- ----------- ----------- ------------
Net income (loss) $ 37 $ 1,185 $ 1,508 $ (418)
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AIRXCEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,508 $ (418)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,387 4,129
Amortization of financing costs 404 498
Deferred income taxes - - - (2,519)
Provision for bad debt 285 359
Gain on sale of assets 26 (1)
Extraordinary loss on early extinguishment of debt 489 - - -
Changes in assets and liabilities:
Accounts receivable (2,540) (918)
Inventories (1,432) (486)
Other assets (214) (151)
Accounts payable 2,320 1,768
Accrued expenses and other liabilities 1,407 10,757
-------------- -------------
Net cash provided by operating activities 6,640 13,018
-------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 3 37
Capital expenditures (2,420) (2,690)
Acquisition of patent - - - (9)
Acquisition of license agreement (400) - - -
-------------- -------------
Net cash used in investing activities (2,817) (2,662)
-------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt 151,404 133,889
Principal payments on long-term debt (154,797) (144,087)
Financing costs incurred (306) - - -
Change in cash overdraft 1,042 - - -
-------------- -------------
Net cash used in financing activities (2,657) (10,198)
-------------- -------------
Net increase in cash and cash equivalents 1,166 158
Cash and cash equivalents, beginning of period 125 177
-------------- -------------
Cash and cash equivalents, end of period $ 1,291 $ 335
============== =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AIRXCEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements have not been
audited but reflect normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the Company's financial
position and results of operations and cash flows for the interim periods
presented. The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. These interim financial statements should be
read in conjunction with the audited consolidated financial statements and the
notes therein for the fiscal year ended December 31, 1999 included in the
Company's Form 10-K filed with the Securities and Exchange Commission on March
13, 2000. The results of operations for any interim period are not necessarily
indicative of results for the full year or for any quarter.
2. ORGANIZATION AND BUSINESS:
Airxcel, Inc. (the "Company") is a wholly-owned subsidiary of Airxcel
Holdings Corporation (Holdings); formerly known as RV Holdings Corporation. The
Company is a diversified designer, manufacturer and marketer of air
conditioners, furnaces, water heaters, and cooking appliances for the recreation
vehicle industry, and wall mount air conditioners, ECUs and heat pumps for the
heating, ventilating and air conditioning industry in the United States, Canada
and certain international markets. The recreation vehicle industry is supplied
by its RV Products division and Suburban Manufacturing Company while the
heating, ventilating and air conditioning industry is supplied by the Crispaire
division. Due to the similarities of the economic characteristics, production
processes, customers, distribution methods and regulatory environment of the
company's products, the Company is managed, operated and reported as one
segment.
3. RECLASSIFICATIONS
The Company has made certain reclassifications to the condensed
consolidated statements of operations for the three months and the nine months
ended September 30, 1999 to conform to the current year presentation.
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Raw Materials $ 12,608 $ 11,860
Work-in-process 2,536 1,825
Finished goods 11,840 11,867
------------- -------------
$ 26,984 $ 25,552
============= =============
</TABLE>
5. OTHER IDENTIFIABLE INTANGIBLE ASSETS
On September 22, 2000 the Company purchased a license agreement which
grants the use of a
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heater control assembly developed by the licensee. The intangible asset is
recorded at cost and amortized on a straight-line basis over the estimated
economic life of ten years.
6. DEBT:
On June 30, 2000 the Company refinanced its Credit Facility with another
bank. Substantially all of the proceeds were used to repay certain indebtedness
and to pay financing costs associated with the new Credit Facility. The total
commitment under the credit facility is $31,000. The Credit Facility permits
borrowings at interest rates based on either the bank's base rate or LIBOR.
Under the Credit Facility the Company is required to maintain compliance with a
fixed charge coverage ratio. The credit facility is collateralized by accounts
receivable, equipment, general intangibles, inventory, and real property.
7. STOCK OPTION PLANS:
On May 23, 2000, Holdings adopted a Stock Option Plan for key employees
and/or directors of the Company to purchase up to 324,667.37 shares of Class A
Common Stock of Holdings at $1 per share. When granted, the stock options may be
exercised after the "trigger date", and will expire at the earlier of 15 years
from the date the plan is adopted or the date the employee ceases to be an
employee of the company. As defined in the Stock Option Plan, the "trigger date"
is the date on which the majority shareholder has disposed of 60% or more of the
securities held by it on January 1, 1998 (i.e. common stock, preferred stock and
notes purchased by the majority shareholder) for cash and/or marketable
securities. The number of stock options that may be exercised is based on the
estimated annual interest rate of return as of the trigger date as set forth in
the plan agreement. No compensation expense relating to this stock option plan
will be recorded until the trigger date.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles 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.
8. INCOME TAXES:
Total taxes differ from the statutory rate due primarily to nondeductible
goodwill amortization and state income taxes.
9. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT:
As stated in Note 6, the Company refinanced its existing Credit Facility
with another bank. As part of the refinancing, unamortized loan financing costs
of $489 were recorded as an extraordinary loss on early extinguishment of debt
(net of $299 income tax benefit).
10. CONTINGENCIES:
During September 1997, the Company made a decision to upgrade certain air
conditioning units which were sold in previous years. In 1997 the Company's cost
to complete the upgrade was estimated and accrued at $500. In 1998 the Company
revised the estimate and accrued an additional
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$100. Management has an agreement with the vendor that supplied the component to
bear a substantial portion of the total cost. At September 30, 2000, the
remaining accrued liability was $73. Management believes the remaining liability
will be applied to the completion of the upgrade during 2000. On July 9, 1999
the Company entered into a letter of credit totaling $1,250 which obligates the
Company to make payment in the event of a default on a contract with a customer.
On September 19, 2000, the letter of credit was amended which reduced the
obligation to $100. Management does not expect any material losses to result
from this off-balance sheet instrument because performance is not expected to be
required. On September 21, 1999 the Company entered into a letter of credit
totaling $7,500 which obligates the Company to make payment in the event the
judgment in the matter discussed in Note 11 is not stayed, vacated, reversed or
paid.
11. LITIGATION:
On April 15, 1999, the jury in a case involving patent, trademark and
trade dress infringement, Bard Manufacturing Company et al. v. Crispaire
Corporation, No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire
for patent infringement in an amount of $9,000. Crispaire provided a bank letter
of credit to secure a stay of execution of the judgment and has filed an appeal.
A decision by the appellate court on the appeal is expected within twenty-four
months from November 1999. Management of the Company believes that the current
damages award was the result of legal and factual errors both by the judge and
jury and that the ultimate result of its appeals process will be either a
reversal or a significant reduction in its liability. The Company does not
believe that the eventual resolution of the Bard Manufacturing litigation will
have a material adverse effect on the Company's financial position, results of
operations or liquidity although, given the inherent risks of litigation, there
can be no assurances in that regard.
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 November 3, 2000 the Company acquired substantially all assets and
assumed certain liabilities of a manufacturing business for $1,393. The
acquisition was funded with the Company's existing credit facility.
13. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FASB 133). FASB 133, as amended, is effective for
fiscal years beginning after June 15, 2000. FASB 133 requires that the Company
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company will
adopt FASB 133 on January 1, 2001 and believes that the adoption will not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.
During 1999, the Securities and Exchange Commission issued Staff Accounting
Bulleting (SAB) No. 101 "Revenue Recognition in Financial Statements" effective
for calendar-year-end registrants for the December 31, 2000 financial
statements. SAB No. 101 contains guidance for the recognition, presentation and
disclosure of revenue recognition in financial statements. Adoption of this SAB
is not expected to have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales. Net sales decreased 9.7% from $47.2 million to $42.6 million
in the quarter ended September 30, 2000 as compared to the corresponding quarter
of 1999. For the nine months ended September 30, 2000 net sales decreased .4%
from $139.5 million to $138.9 million in the same nine months of 1999. For the
quarter ended September 30, 2000 net sales decreased primarily due to reduced
sales volume in the RV industry which the Company believes is a result of the
rising interest rates and increases in gasoline prices. For the nine months
ended September 30, 2000 sales have decreased slightly due to the offset of
strong sales within the telecommunications market during the first six months of
2000.
Gross Profit. Gross profit decreased 19.6% from $9.7 million (21% of net
sales) to $7.8 million (18% of net sales) in the quarter ended September 30,
2000 as compared to the corresponding quarter of 1999. For the nine months ended
September 30, 2000 gross profit decreased 12.1% from $31.4 million (23% of net
sales) to $27.6 million (20% of net sales) in the same nine months of 1999. The
decrease was principally due to increases in the cost of the products produced
as well as a negative change in the product mix.
Selling, general and administrative expense (including amortization of
intangible assets and computer software). Selling, general and administrative
expense decreased 2.1% from $4.7 million (10% of net sales) to $4.6 million (11%
of net sales) in the quarter ended September 30, 2000 as compared to the
corresponding quarter of 1999. For the nine months ended September 30, 2000
selling, general and administrative expense remained constant at $14.9 million
(11% of net sales) in the same nine months as 1999. For the quarter ended
September 30, 2000 the decrease was primarily due to cost reductions in response
to the decline in the RV industry.
Accrued litigation expense. Accrued litigation expense increased to $.2
million in the quarter ended September 30, 2000 as compared to the corresponding
quarter of 1999. For the nine months ended September 30, 2000 accrued litigation
expense decreased from $7.6 million to $.4 million in the same nine months as
1999 due to the litigation expense recorded in the three months ended March 31,
1999 as discussed in Note 11 of the notes to the condensed consolidated
financial statements.
Interest expense. Interest expense remained constant at $3.0 million in
the quarter ended September 30, 2000 as compared to the corresponding quarter of
1999 and decreased from $9.3 million to $8.9 million in the nine months ended
September 30, 2000. Interest expense decreased during the nine months ended
September 30, 2000 primarily due to reductions in average long-term borrowings
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
For the nine (9) months ended September 30, 2000, the Company generated
$6.6 million in net cash flow from operating activities compared to $13.0
million for the comparable period in 1999, primarily as a result of increases in
income, accounts payable and accrued expenses and other liabilities offset by
increases in accounts receivable and inventories. Capital expenditures totaled
$2.4 million for the nine months ended September 30, 2000, compared to $2.7
million for the same period in 1999.
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On June 30, 2000 the Company refinanced its credit facility with another
bank. The covenants under the Company's credit facility with the bank restrict
the ability, subject to certain exceptions, to dispose of assets, incur
additional indebtedness, guarantee obligations, prepay other indebtedness or
amend other debt instruments, make distributions or pay dividends, redeem or
repurchase capital stock, create liens on assets, make acquisitions, engage in
mergers or consolidations, and change the business conducted by the Company. In
addition, the Company is required to maintain compliance with a fixed charge
coverage ratio.
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.
CERTAIN IMPORTANT FACTORS
Except for the historical information contained herein, this Form 10-Q
contains forward-looking statements, and any statements contained in this Form
10-Q that are not statements of historical fact are deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "estimate", or "continue", the negative or
other variations thereof, or comparable terminology, are intended
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including possible changes in economic conditions,
prevailing interest rates or gasoline prices, or the occurrence of unusually
severe weather conditions, that can affect both the purchase and usage of
recreational vehicles, which, in turn, affects purchases by consumers of the
products that the Company sells.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk on variable rate financial instruments: The Company maintains
a $31 million credit facility which permits borrowings at interest rates based
on either the bank's base rate or LIBOR. Increases in market interest rates
would cause interest expense to increase and earnings before income taxes to
decrease. The change in interest expense and earnings before income taxes would
be dependent upon the weighted average outstanding borrowings during the
reporting period following an increase in market interest rates. Based on the
Company's current outstanding borrowings under the credit facility at an average
interest rate of 8.82% per annum, a 1% increase in market interest rates would
increase interest expense and decrease earnings before income taxes by
approximately $130,000 annually.
Market risk on fixed-rate financial instruments: Included in long-term
debt are $90 million of 11% Senior Subordinated Notes due 2007. Increases in
market interest rates would generally cause a decrease in the fair market value
of the Notes and a decrease in market interest rates would generally cause an
increase in fair value of the Notes.
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PART 2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 15, 1999, the jury in a case involving patent, trademark and
trade dress infringement, Bard Manufacturing Company et al. v. Crispaire
Corporation, No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire
for patent infringement in an amount of $9,000,000. Crispaire provided a bank
letter of credit to secure a stay of execution of the judgment and has filed an
appeal. A decision by the appellate court on the appeal is expected within
twenty-four months from November 1999. Management of the Company believes that
the current damages award was the result of legal and factual errors both by the
judge and jury and that the ultimate result of its appeals process will be
either a reversal or a significant reduction in its liability. The Company does
not believe that the eventual resolution of the Bard Manufacturing litigation
will have a material adverse effect on the Company's financial position, results
of operations or liquidity although, given the inherent risks of litigation,
there can be no assurances in that regard.
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.
ITEM 2. CHANGES IN SECURITIES
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Airxcel, Inc.
11/09/00 /s/ Melvin L. Adams
------------------------------ ----------------------------------------------
Date Melvin L. Adams
President and Chief Executive Officer
11/09/00 /s/ Richard L. Schreck
------------------------------ ----------------------------------------------
Date Richard L. Schreck
Secretary/Treasurer and
Chief Financial Officer
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