10-Q/A 1 y04142ce10vqza.txt AMENDMENT NO. 1 TO FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 INFORMATION SPECIFIED FORM 10-Q/A (see explanatory note below) AMENDMENT NO. 1 (Mark one) [ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ COMMISSION FILE NUMBER 333-43335 AIRXCEL, INC. (Exact name of Registrant as specified in its charter) Delaware 48-1071795 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3050 North Saint Francis, Wichita, Kansas 67219 (Address of principal executive offices) (Zip Code) (316) 832-3400 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed, since last year) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES [XX] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 1,000 shares of Common Stock as of September 30, 2004 EXPLANATORY NOTE The Company is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the for the quarterly period ended September 30, 2004 in order to update its disclosure regarding the Company's internal disclosure controls and procedures. Additionally, in connection with the filing of Amendment No. 1 and pursuant to SEC rules, the Company is including certain currently dated certifications. This information is provided solely to comply with the obligation contained in the indenture agreement governing the Company's Senior Subordinated Notes. 2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AIRXCEL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)

See accompanying notes. 3 AIRXCEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)

See accompanying notes. 4 AIRXCEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

See accompanying notes. 5 AIRXCEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) (Unaudited)

6 AIRXCEL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 1. BASIS OF PRESENTATION: The accompanying interim consolidated financial statements have not been audited but reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the Company's financial position and results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Regulation S-X. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. These interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes therein for the fiscal year ended December 31, 2003 included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 26, 2004. The results of operations for any interim period are not necessarily indicative of results for the full year or for any quarter. 2. ORGANIZATION AND BUSINESS: Airxcel, Inc. (the "Company") is a wholly-owned subsidiary of Airxcel Holdings Corporation (Holdings); formerly known as RV Holdings Corporation. The Company is a diversified designer, manufacturer and marketer of air conditioners, furnaces, water heaters, cooking appliances and low-voltage refrigeration compressors for the recreation vehicle industry, and wall mount air conditioners, environmental control units and heat pumps for the heating, ventilating and air conditioning industry in the United States, Canada and certain international markets. The recreation vehicle industry is supplied by its RV Products division and Suburban Manufacturing Company while the heating, ventilating and air conditioning industry is supplied by the Marvair division, formerly Crispaire division. Due to the similarities of the economic characteristics, production processes, customers, distribution methods and regulatory environment of the company's products, the Company is managed, operated and reported as one segment. A significant part of the Company's operations are directly dependent upon the conditions in the highly cyclical RV industry, highly competitive telecommunications industry and the commercial and public construction industry. Companies within these industries, including the Company's largest customers, are subject to volatility in operating results due to external factors such as economic, demographic and political changes. These factors include seasonal factors, fuel availability and fuel prices, overall consumer confidence and general economic conditions, the level of discretionary consumer spending, government regulation, interest rates and unemployment. 7 3. INVENTORIES: Inventories consist of the following:

4. NOTES RECEIVABLE FROM HOLDINGS: On February 19, 2003, the Company purchased certain notes from the holders for an aggregate purchase price of $3,447 due from Holdings which mature November 2008. Although the Company may determine to distribute the notes to Holdings, subject to compliance with the Company's credit facility, senior subordinated notes and other debt agreements, the Company does not anticipate this will occur in the foreseeable future. 5. WARRANTY RESERVE: The Company offers a one to five year warranty for its products. The specific terms and conditions of those warranties vary depending upon the product sold. An estimated cost of product warranty is recognized at the time the revenue is recognized. The Company estimates the cost of its product warranty obligation based on historical analysis of sales and warranty costs incurred. The Company periodically assesses the adequacy of its recorded product warranty obligation and adjusts the amounts as necessary. Changes in the Company's product warranty liability during the period are as follows:

6. LONG-TERM DEBT: On August 9, 2004, the Company redeemed $10,000 of the principal amount of Senior Subordinated Notes at a redemption price of 103.667% plus accrued and unpaid interest totaling $10,623. On August 6, 2004, the Company amended its Credit Facility with a bank which extended the maturity date to March 31, 2007. 8 7. INCOME TAXES: The effective income tax rate decreased during the quarter ended September 30, 2004 as a result of the use of a federal tax credit. 8. CONTINGENCY: On January 6, 2004, the Company entered into a letter of credit totaling $1,210. On March 5, 2004 and again on August 3, 2004, the Company amended an existing letter of credit to decrease the amount to $664. 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. 9. BENEFIT PLAN The components of net periodic pension benefit for the nine months ended September 30, 2004 and 2003 for Suburban Manufacturing Company Retirement Plan ("Plan 1") and the Suburban Manufacturing Company Retirement Plan for Bargaining Employees ("Plan 2") were:

10. 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 condensed 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 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. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales. Net sales increased 12.4% from $44.2 million to $49.7 million in the quarter ended September 30, 2003 as compared to the corresponding quarter of 2004. For the nine month periods, net sales increased 15.7% from $124.1 million to $143.6 million in the nine months of 2004. For the quarter and nine months ended September 30, 2004, net sales increased in comparison to the same period of 2003 primarily due to growth within the RV industry. Gross profit. Gross profit increased 3.4% from $8.9 million (20% of net sales) to $9.2 million (19% of net sales) in the quarter ended September 30, 2003 as compared to the corresponding quarter of 2004. For the nine month periods, gross profit increased 15.2% from $24.3 million (20% of net sales) in 2003 to $28.0 million (20% of net sales) in the nine months of 2004. For the quarter and nine months ended September 30, 2004, gross profit increased in comparison to the same period of 2003 primarily due to increased sales volume. The decline in gross profit as a percent of sales is due to the increased cost of raw material components including steel, copper and aluminum. Selling, general and administrative expense (including amortization of intangible assets and computer software). Selling, general and administrative expense increased 12.8% from $3.9 million (9% of net sales) to $4.4 million (9% of net sales) in the quarter ended September 30, 2003 as compared to the corresponding quarter of 2004. For the nine month periods, selling, general and administrative expense increased 8.5% from $11.8 million (10% of net sales) in 2003 to $12.8 million (9% of net sales) in 2004. The increase was primarily due to growth experienced during the period and expenses associated with various litigation matters incidental to the conduct of the Company's business. Interest expense. Interest expense decreased 7.4% from $2.7 million to $2.5 million in the quarter ended September 30, 2003 as compared to the corresponding quarter of 2004. For the nine month periods, interest expense decreased 3.7% from $8.1 million in 2003 to $7.8 million in the nine months of 2004. The decrease is primarily due to reductions in average long term borrowings outstanding resulting from improved operating cash flows, including the redemption of $10 million in Senior Subordinated Notes in August 2004. Premium on bond repurchase. Premium on bond repurchase increased to $.4 million in the quarter ended September 30, 2004 as compared to the corresponding quarter of 2003 due to bond premium associated with the redemption of $10 million of Senior Subordinated Notes. Income tax expense. Income tax expense decreased from $.9 million to $.6 million in the quarter ended September 30, 2003 as compared to the corresponding quarter of 2004 and increased from $1.7 million to $2.4 million in the nine months ended September 30, 2003 as compared to the same nine months in 2004, due primarily to the related decreases and increases in pretax income for these periods. The effective income tax rate decreased during the quarter ended September 30, 2004 as a result of the use of a federal tax credit. 10 LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 2004, the Company generated $7.4 million in net cash flow from operating activities compared to $7.5 million for the comparable period in 2003. Increased profitability in the 2004 period and greater use of accounts payable, cash overdraft positions and accrued expenses substantially offset the growth of accounts receivable and inventory as volume increases. The significant increase in inventory was also due in part to a large volume purchase of a key raw material at advantageous pricing. Capital expenditures totaled $1.4 million for the nine months ended September 30, 2004 compared to $.7 million for the same period in 2003. 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. On August 6, 2004, the Company amended its Credit Facility with a bank which extends the maturity date to March 31, 2007. On February 19, 2003, the Company purchased certain notes from the holders for an aggregate purchase price of $3.4 million due from Holdings which mature November 2008. Although the Company may determine to distribute the notes to Holdings, subject to compliance with the Company's credit facility, senior subordinated notes and other debt agreements, the Company does not anticipate this will occur in the foreseeable future. Covenants under the Company's credit facility with the bank restrict the Company's ability, subject to certain exceptions, to dispose of assets, incur additional indebtedness, guarantee obligations, prepay other indebtedness or amend other debt instruments, make distributions or pay dividends, redeem or repurchase capital stock, create liens on assets, make acquisitions, engage in mergers or consolidations, and change the business conducted by the Company. In addition, the Company is required to maintain compliance with a fixed charge coverage ratio and maintain a minimum effective capital balance. The Company is in compliance with these ratios at September 30, 2004. Management's current business plan estimates working capital levels and operating profitability. The achievement of this plan is necessary for compliance with various financial covenants during 2004. The possibility exists that certain financial covenants will not be met if business conditions are other than as anticipated. In such event, the Company would need an amendment or waiver of such financial covenants; however, there can be no assurance that such amendment or waiver will be obtained. The Company meets its working capital, capital equipment requirements and cash requirements with funds generated internally and funds from agreements with a bank. Management currently expects its cash on hand, funds from operations and borrowings available under existing credit facilities to be sufficient to cover both short-term and long-term operating requirements. SEASONALITY A significant part of the Company's operations are directly dependent upon the conditions in the highly cyclical RV industry, highly competitive telecommunications industry and the commercial and public construction industry. Companies within these industries, including the Company's largest customers, are subject to volatility in operating results due to external factors such as economic, demographic and political changes. These factors include seasonal factors, 11 fuel availability and fuel prices, overall consumer confidence and general economic conditions, the level of discretionary consumer spending, government regulation, interest rates and unemployment. CERTAIN IMPORTANT FACTORS Except for the historical 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 $25 million credit facility which permits borrowings at interest rates based on either the bank's base rate or LIBOR. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. Based on the Company's current outstanding borrowings under the credit facility at an average interest rate of 3.6% per annum, a 1% increase in market interest rates would increase interest expense and decrease earnings before income taxes by approximately $42,000 annually. Market risk on fixed-rate financial instruments: Included in long-term debt at September 30, 2004 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. 12 ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this quarterly report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. (b) Internal Controls Over Financial Reporting. There have not been any changes in the Company's internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. 13 PART 2 - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS N/A ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 14 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. 12/23/04 /s/ Melvin L. Adams -------- ------------------------------------- Date Melvin L. Adams President and Chief Executive Officer 12/23/04 /s/ Richard L. Schreck -------- ------------------------------------- Date Richard L. Schreck Secretary/Treasurer and Chief Financial Officer 15

AIRXCEL INC 10-Q/A