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REXHALL INDUSTRIES, INC.
1996 Annual Report
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ABOUT REXHALL
Rexhall Industries is a manufacturer of Class "A" motorhomes entering our
11th year of operation. Manufacturing began in 1986 in a renovated, 18,000
square foot recreational vehicle plant in Pacoima, California. As orders
increased, the Company quickly outgrew its modest facilities and moved to an
80,000 square foot facility in Saugus, California. In June 1989 management
decided to take the Company public, with an initial offering of 1.15 million
shares of common stock trading on the NASDAQ Stock exchange. In 1991 Business
Week Magazine named Rexhall Industries the "Number One Best Small Growth
Company in America," out of 7,700 publicly traded companies. These early
milestones helped reinforce the philosophy of the Company and it wasn't long
before Rexhall was one of the top manufacturers of Class "A" motorhomes
nationally. In 1993, as the products gained national attention, the Company
decided it was important to begin manufacturing the product closer to its
dealers in the eastern half of the United States. Since Elkhart is what many
consider the RV manfucaturing "hub," Rexhall felt that taking advantage of
this opportunity would provide the Company with the ability to better serve
the dealers in this area. At the same time, this would improve the
Company's ability to purchase the raw materials for both plants at prices
that would allow Rexhall to remain and even improve its competitive position
in the industry. In 1994, Rexhall started building its new Corporate
headquarters in Lancaster, California. As part of the City of Lancaster's
redevelopment project, Rexhall was able to acquire 10 acres of land on which
to build a new manufacturing facility and Corporate Headquarters, now
encompassing 107,000 square feet of office and production space. Clearly,
Rexhall's fast start did not and has not stopped. 10 years of refining the
facilities and developing the products has positioned Rexhall to be one of
the industry's top manufacturers.
In 1996, Rexhall broke records for total shipments. Workers produced and
shipped 1170 Class "A" motorhomes at their two manufacturing plants,
eclipsing the record set in 1995.
Rexhall's motorhomes are sold through 100 dealers across the United States
and Canada.
<PAGE>
FINANCIAL HIGHLIGHTS
Operating Results for *1994 *1995 1996
year ending December 31st
Sales $50,090,000 $60,709,000 $64,959,000
Income Before Taxes 3,222,000 3,394,000 2,131,000
Net Income 1,922,000 2,034,000 1,284,000
Working Capital 8,858,000 9,269,000 9,519,000
Total Assets 15,991,000 19,975,000 23,496,000
Shareholders' Equity 10,376,000 12,225,000 13,581,000
Sales per Share $18 $22 $24
Earnings per Share $.71 $.74 $.47
Shareholders' Equity per Share $4.00 $4.48 $4.98
Weighted Average Shares 2,720,349 2,731,057 2,725,131
Outstanding (Primary)
Current Ratio 2.6 to 1 2.34 to 1 2.4 to 1
*1994 and 1995 calculations have been updated to reflect a 5% dividend given
to all stockholders as of 04-03-96.
<PAGE>
Dear Fellow Shareholders:
I would like to thank you for your support and confidence in Rexhall
Industries. As a fellow shareholder, I look back over 1996 with mixed
reaction. It seems as though we took three steps forward and two steps
back.
Even with records sales of nearly 65 million, we did not obtain our goal of
increasing our margins. Although shareholder equity did increase to almost
14 million dollars, this comes with very little enthusiasm after our
disappointing 4th quarter.
Our two steps backwards came almost entirely from our Indiana facility.
With over 19 million dollars in sales, an increase of 27% over 1995, we
ended the year with approximately a $350,000 loss for the Indiana plant.
This loss was due mainly to excess labor costs, additional service and
warranty charges, rebates and discounts throughout the year 1996, resulting
in an over all reduction to all our margins as a corporation. The good news
is we have captured more market share, established a better dealer network
through out the Mid-West and Eastern states.
I heard a quote years ago that said, "Nothing good comes easy." Indiana
sure wasn't easy. Growth and prosperity does not always come without a
price and, as you, I hope we've paid our price in 1996.
The transfer of Marco Martinez from California to our Indiana facility in
November 1996 has led to a restructuring of our personnel and our sales and
marketing programs with our dealer network. Rexhall and its Board of
Directors still feel strongly about our Indiana facility.
Even though the Indiana plant suffered losses through 1996, our long term
goal still has not changed to create a strong presence in the Mid-West and
Eastern states. We have purchased a small service center down the street
from our Indiana plant to better service our customers as well as help our
dealers. We feel this will be another asset to our facility in Indiana.
Our goal in Indiana is to see profitability return by the first or second
quarter of 1997. We make no promises other than to give it 110%.
The potential for our entire RV industry is still great, with more baby
boomers entering the market every year. The overall RV market should grow
in 1997 and Rexhall hopes to grow with it.
In 1996 we started an addition on to our Lancaster facility, which will
increase the size from 87,000 to almost 107,000 square feet. This should
lend itself to a more efficient
<PAGE>
facility and one with a greater capacity. Our sales for the California
facility grew slightly to just over 45 million dollars.
As a fellow shareholder I am disappointed about the performance of our stock
in 1996. However, I'm very encouraged about the prospect for 1997. With
confidence and hard work we move into 1997, with one main goal in mind - to
build shareholder equity and to make happy customers, with all our Rexhall
products. Our newly designed Aerbus motorhome has never been better
accepted. Our high line rear-engine diesel models Rolls Air, RexAir and
Aerbus have grown substantially. In 1996 we reintroduced to the market our
Vision motorhome, this motorhome should gain popularity all through 1997.
Let me end by thanking our Board of Directors, all of Rexhall's dealers,
customers, shareholders, and especially our employees at Rexhall, who have
helped by working so hard through the past years to help build Rexhall into
the Company it is today.
Sincerely,
William J. Rex
President & Chief Executive
Officer
<PAGE>
OUR APPROACH TO BUSINESS
Two fundamental concepts distinguish Rexhall and the products we produce.
Number one, Rexhall is what we consider to be more of a true manufacturer.
True manufacturer in the sense that more of the component parts of the
motorhome are manufactured "in-house" by Rexhall. Second, Rexhall utilizes
what we refer to as a 100% welded, "uni-body" constructed, steel cage design.
What is a 100% welded, "uni-body", steel cage? As most would agree, the
real strength of any structure begins with a strong foundation. While many
motorhomes claim to have a steel frame design, in most instances the
components of this frame are either a combination of materials and/or the
component parts. The chassis, floor substructure, walls and roof are being
fastened together using screws, bolts, or some other "independent" style
fastening mechanism. Rexhall's concept of uniting the various component
parts of the structure: (chassis, floor substructure, walls and roof)
together as one through a welding process achieves advantages in strength,
durability, and a quieter ride.
Because the process is unique, Rexhall has always believed that the best
person for the job was someone who has been trained in this unique
manufacturing environment. Therefore, key positions are filled by seasoned
employees who possess strong manufacturing skills and who are familiar with
our unique concepts. This generally means a policy of "promote from within."
Our hands-on approach means quality workers, working together as a team
while maintaining disciplined schedules as well as involvement from quality
inspectors and supervisors at all levels of the process.
We have continued our development of product engineering through the use of
CAD systems as well as continued evaluation and improvement of our material
control, production processes, and market research and development. In
other words, all phases of operation are continually being evaluated for
possible enhancements to better facilitate our goal of building motorhomes
on time, on budget, and with consistent quality.
<PAGE>
OUR MOTORHOMES
The Company was founded with the intention of producing a motorhome
distinctive in concept and philosophy. Management's "hands on" background
and experience in production give Rexhall a unique ability to evaluate the
standard manufacturing process commonly used throughout the RV industry.
This knowledge of the manufacturing process paired with the enthusiasm to
produce a better product through the implementation of improved concept and
design molded Rexhall's "mission" as a manufacturer: the idea of producing a
superior motorhome, one that was stronger, more durable, and quieter riding;
one that performed better while in motion, was more stable, easier and less
intimidating to drive, while more comfortable and "home-like" while at rest;
a motorhome that through its strength would provide buyers with the peace of
mind that they were safer and that their hard earned money was spent on a
motorhome that would return the value the buyer should expect.
Today, Rexhall manufactures four lines of motorhomes, from the high line
RollsAir Diesel Pusher and gasoline models to the mid-line Aerbus and
RexAir, to the reintroduced and redesigned Vision. These products provide
consumers with a choice of sizes ranging from 23' to 38' in a wide variety
of floorplans. Most product lines offer the option of the Spartan
"Alpine-R" Diesel Pusher Chassis, the Ford F-53 Super Duty Chassis, or the
Chevrolet P-30 Vortec Chassis. Aside from the chassis', Rexhall offers
floorplans with "slide-out" rooms which offer greatly increased interior
living space, and a wide range of options from which retail buyers can
select at the time of purchase. Suggested retail prices of these products
range from $61,500 to $165,000.
Rexhall continues its advance through the refinement of existing products,
and through the evaluation of opportunities for market expansion in areas
that will provide the Company with additional opportunity for growth and
profits.
OUR COMPANY'S FACILITIES
INDIANA - Elkhart Plant
The Company owns and operates a 97,000 square foot facility on 12 acres in
Elkhart, Indiana. The site, purchased in May 1993, houses three buildings
which all serve to produce motorhomes. Prior to Rexhall's purchase of the
plant, Mallard Coach owned the facilities and also manufactured Class
A motorhomes. The Elkhart facility is debt free with no mortgages on the
property.
Marco Martinez was appointed as General Manager and Vice President in
November of 1996. Marco served as Executive Director of Administration at
the Corporate office prior to his relocation. His assignment is to organize
the Elkhart facility in such a way that will increase profits for the
Company.
In 1996, we built 370 motorhomes thereby averaging 1.5 motorhomes a day.
Current rate of production is one motorhome a day with a single shift
capacity that could build up to 5 motorhomes a day. Units sold in 1996 were
332 which was a substantial increase in sales. The strongest sales
generally occur during the first months of the year.
<PAGE>
OUR COMPANY'S FACILITIES
CALIFORNIA - Lancaster Plant
Our company's headquarters and manufacturing facilities for eight years were
in Saugus, California. The Saugus plant closed in December of 1995 as
workers moved to our new 87,000 square foot facility in Lancaster,
California.
The newly constructed plant, built at a cost of approximately $2.2 million,
enables us to benefit financially by eliminating our previous lease expense.
The Lancaster plant is fully paid for with no long-term debt. The plant was
specifically designed for manufacturing Class A motorhomes. We are pleased
to have dedicated this 87,000 square foot facility strictly to the
manufacturing of the Aerbus, RexAir, RollsAir and Vision.
The plant has three buildings within one main frame. One sub-structure is
dedicated to producing fiberglass parts. All welding onto the raw chassis
is performed in the second area. The largest area is used for the
installation of floors, walls, carpeting, electrical wiring, cabinetry, and
numerous other processes. Final finish is done outside.
By late June 1997, we should complete our addition, which will add
approximately 20,000 square feet. This will expand our welding shop,
fiberglass department, and move our final finish department under roof.
RV Service Center - California
We purchased a 4.5 acre site located in Lancaster, California in September
of 1995 to serve as the company's RV Service Center. The site contains a
40,000 square foot facility and was purchased from the City of Lancaster's
Redevelopment Agency for $980,000. The terms of the purchase involved a ten
percent cash down payment and the balance is payable in monthly payments
over a 20 year period at the fixed interest rate of 5.9%.
James Rex, our National Director of Service and Warranty, manages 15
workers. We hope to save on warranty expenses by performing repair work
ourselves. Additionally, we hope to turn the building into a profit center
through service and sales of optional equipment, parts, and accessories. We
will also lease part of the building to Village R.V. as a retail sales
dealership for Aerbus, RexAir, and RollsAir.
RV Service Center - Indiana
In September 1996, the Company purchased a 4,500 square foot facility
located one mile east of the Elkhart plant. The facility has 1,500 sq. ft.
of office space and a 3,000 sq. ft. warehouse area which will be used for
providing service and warranty repairs to customers.
<PAGE>
MANAGEMENT'S DISCUSSION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth for each of the three years indicated the
percentage of net sales represented by certain items on the Company's
Statements of Operations:
Percentage of Net Sales
December 31,
1994 1995 1996
Revenues 100.0% 100.0% 100.0%
Costs of goods sold 86.2% 85.6% 86.5%
Gross profit 13.8% 14.4% 13.5%
Selling, general,
and administrative expenses 7.7% 8.7% 9.9%
Income before taxes 6.1% 5.7% 3.6%
Other (Income) expense, net 0.3% (0.1%) (0.3%)
Income before income taxes 6.4% 5.6% 3.3%
Provision for income taxes (2.6%) (2.2%) (1.3%)
Net income 3.8% 3.4% 2.0%
Result of Operations
As is generally the case in the recreational vehicle industry, the Company
believes that its results of operations could be adversely impacted in the
future by substantial increases in interest rates, a general tightening of
credit or other restrictions on the availability of financing for the
purchase of recreational vehicles, as well as by shortages of gasoline or,
substantial increases in the price of gasoline.
1996 Compared to 1995
Revenues increased $4,250,000 (a 7.0% increase) from 1995 to 1996. There
were 1,170 units shipped in 1996 versus 1,143 units in 1995. The average
per unit price increase which was due to the increase in the number of
optional equipment, items offered, and product improvements, combined with
increased chassis costs during 1996. In addition, the Company's Indiana
facility sold units to a substantial number of new dealerships in the
eastern portion of the United States during 1996.
Gross profit decreased to 13.5% of sales as compared to 14.4% in 1995,
primarily due to inventory adjustments and direct labor costs coming from
our Indiana facility.
Selling, General, Administrative and other income and expenses increased to
9.9% of sales as compared to 8.7% in 1995. Increases occurred in several
areas including warranty costs, legal expenses, dealer's rebates, and in
sales incentive payments to sales people. Dealer's rebates issued in 1995
and 1996 served the Company well, allowing it to bring new dealerships into
its network, thereby increasing the Company's market share. 1996 had 1,170
total units sold as compared to 1,143 total units sold in 1995.
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
1995 Compared to 1994
Revenues increased $10,619,000 (a 21.2% increase) from 1994 to 1995. There
were 1,143 units shipped in 1995 versus 993 units in 1994. The average per
unit price increased by approximately 5.3% due to the increase in the number
of optional equipment items offered and product improvements, combined with
increased chassis costs during 1995. In addition, the Company's Indiana
facility sold units to a substantial number of new dealerships in the
eastern portion of the United States during 1995.
Gross profit increased to 14.4% of sales as compared to 13.8% in 1994,
primarily due to an increasing network of dealerships and improved economics
of scale at the Company's Indiana Production facility and lower direct labor
costs.
Selling, General, Administrative and other income and expenses increased to
8.7% of sales as compared to 7.7% in 1994. Increases occurred in several
areas including warranty costs, dealer's rebates, and in sales incentive
("Spiff") payments to sales people. Dealer's rebates issued in 1995 served
the Company well in allowing it to bring new dealerships into its network
thereby increasing the Company's market share. Spiff payments, which serve
as an incentive to sales people, increased with the sale of motorhomes in
1995; 1995 had 1,143 total units sold as compared to 993 total units sold in
1994.
Liquidity of Capital Resources
At December 31, 1996, working capital was $9,519,000 as compared to
$9,269,000 at December 31, 1995.
As of December 31, 1996, the Company has a $3,500,000 bank line of credit
with Bank of America which can be used for working capital purposes. Under
this line of credit, $400,000 has been set aside as an Irrevocable Standby
Letter of Credit for the Company to meet the requirements for self-insurance
established by the Department of Industrial Relations which regulates
workmen's compensation insurance in California. No letter of credit is
required for the Elkhart Plant since economic affordability allows the
Company the opportunity to purchase a workers compensation insurance policy
in Indiana.
During 1995, the Company was provided cash from operating activities of
approximately $1,195,000 primarily due to more efficient use of raw
materials inventory and utilization of other assets and other liabilities.
During 1996, $207,000 was provided from operating activities. The decrease
is mainly attributed to a greater level of inventory.
During 1995, the Company used cash for investing activities of approximately
$2,406,000 principally due to the purchase and construction of its
Lancaster, California facilities. In 1996, the Company used cash of
$1,426,000 principally to expand the Lancaster facility, purchase the
service facility in Elkhart and acquire production equipment.
During 1995, approximately $691,000 was provided from financing activities
due primarily to increases in long-term debt. During 1996, $37,000 was used
mainly to repurchase stock from the open market.
Management believes that internally generated funds, cash on hand and
borrowing available under its line of credit will be sufficient for the
Company's cash needs for the next 12 months and into the foreseeable
future.
<PAGE>
FINANCIAL STATEMENTS
REXHALL INDUSTRIES, INC.
BALANCE SHEETS
December 31, 1995 and 1996
ASSETS NOTES 1995 1996
CURRENT ASSETS
Cash and cash equivalents $1,998,000 $ 742,000
Accounts receivables, less allowance
for doubtful accounts 12,000
in 1995, and 1996 5,063,000 3,208,000
Inventories 1 8,651,000 13,793,000
Other current assets 163,000 151,000
Income tax receivable 5 --- 271,000
Deferred income tax assets 5 286,000 439,000
Total Current Assets 16,161,000 18,604,000
PROPERTY AND EQUIPMENT-NET 2, 4 3,807,000 4,885,000
OTHER ASSETS 7,000 7,000
TOTAL $19,975,000 $23,496,000
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 3 $ 5,747,000 $7,591,000
Warranty allowance 311,000 355,000
Reserve for self insurance 6 365,000 365,000
Customer deposits 56,000 ---
Other accrued liabilities 389,000 748,000
Current portion of long-term debt 4 24,000 26,000
Total current liabilities 6,892,000 9,085,000
Deferred income tax liabilities 5 6,000 4,000
Long-Term debt 4 852,000 826,000
Total Liabilities 7,750,000 9,915,000
COMMITMENTS AND CONTINGENCIES 6
SHAREHOLDERS' EQUITY 7, 8
Common stock-no par value,
authorized, 10,000,000 shares
issued and outstanding;
2,626,000 at December 31, 1995 and
2,630,030 at December 31, 1996 6,461,000 6,533,000
Retained earnings 5,764,000 7,048,000
SHAREHOLDERS' EQUITY 12,225,000 13,581,000
Total $19,975,000 $23,496,000
See notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 and 1996
NOTES 1994 1995 1996
REVENUES 9 $50,090,000 $60,709,000 $64,959,000
COST OF GOODS SOLD 43,184,000 51,981,000 56,167,000
GROSS PROFIT 6,906,000 8,728,000 8,792,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,841,000 5,281,000 6,426,000
INCOME FROM OPERATIONS 3,065,000 3,447,000 2,366,000
INTEREST INCOME 181,000 69,000 29,000
INTEREST EXPENSE 3, 4 (48,000) (136,000) (171,000)
OTHER INCOME(EXPENSE) 24,000 14,000 (93,000)
INCOME BEFORE INCOME TAXES 3,222,000 3,394,000 2,131,000
PROVISION FOR INCOME TAXES 5 1,300,000 1,360,000 847,000
NET INCOME $1,922,000 $2,034,000 $1,284,000
NET INCOME PER SHARE $ .71 $ .74 $ .47
WEIGHTED AVERAGE SHARES OUTSTANDING 2,720,349 2,731,057 2,725,131
REXHALL INDUSTRIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 and 1996
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS TOTAL
BALANCE, January 1, 1994 2,514,000 $5,825,000 $1,808,000 $7,633,000
Exercise of Stock options 142,000 825,000 825,000
Repurchase of Stock (1,000) (4,000) (4,000)
Net Income _________ ________ 1,922,000 1,922,000
BALANCE, December 31, 1994 2,655,000 6,646,000 3,730,000 10,376,000
Repurchase of Stock (29,000) (185,000) (185,000)
Net Income _________ ________ 2,034,000 2,034,000
BALANCE, December 31, 1995 2,626,000 6,461,000 5,764,000 12,225,000
Exercise of Stock options 10,000 33,000 33,000
Repurchase of Stock (6,000) (46,000) --- (46,000)
Options issued to consultant 85,000 85,000
Net Income _________ ________ 1,284,000 1,284,000
BALANCE, December 31, 1996 2,630,000 $6,533,000 $7,048,000 $13,581,000
See notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,922,000 $2,034,000 $1,284,000
Adjustments to reconcile net income
to net cash provided by (used in)
Operating Activities:
Depreciation and amortization 135,000 109,000 348,000
Loss on retirement of property and equipment --- 21,000 ---
Provision for bad debts (1,000) 1,000 ---
Provision for deferred income taxes 8,000 (41,000) (155,000)
Options issued to consultant --- --- 85,000
(Increase)decrease in accounts
receivable (1,044,000) (1,156,000) 1,855,000
Increase in inventories (2,688,000) (1,230,000) (5,142,000)
Income tax receivable --- --- (271,000)
Increase in accounts payable 1,355,000 959,000 1,844,000
Increase (decrease) in warranty allowance 55,000 (10,000) 44,000
Increase (decrease) in reserve for
self-insurance (292,000) 193,000 ---
Change in other assets, net of
change in other liabilities (683,000) 315,000 315,000
Net cash provided by (used in)
operating activities (1,233,000) 1,195,000 207,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (923,000) (2,406,000) (1,426,000)
(Increase)decrease in investments 2,523,000 --- ---
Proceeds from disposal of property
and equipment --- --- ---
Net cash(used in) provided by investing
activities 1,600,000 (2,406,000) (1,426,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt --- 980,000 ---
Repayments of long-term debt --- (104,000) (24,000)
Proceeds from sale of common stock 825,000 --- 33,000
Repurchase of stock (4,000) (185,000) (46,000)
Net cash provided (used in) by
financing activities 821,000 691,000 (37,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,188,000 (520,000) (1,256,000)
BEGINNING CASH AND CASH EQUIVALENTS 1,330,000 2,518,000 1,998,000
ENDING CASH AND CASH EQUIVALENTS $2,518,000 $1,998,000 $ 742,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Income taxes paid during the year $1,423,000 $1,320,639 $918,000
Income tax refunds received during
the year 11,000 --- ---
Interest paid during the year 47,000 131,000 273,000
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities - Rexhall Industries, Inc. (the "Company") designs,
manufactures and sells Class A motorhomes. Class A motorhomes are self-
contained and self-powered recreational vehicles used primarily in
conjunction with leisure travel and outdoor activities.
Cash and Cash Equivalents - Cash and cash equivalents, include cash and
investments purchased with original maturities of three months or less.
Concentration of Credit Risk - Sales are usually made to dealers over a wide
geographic area on either a C.O.D. basis or on terms requiring payment
within ten days or less of the dealer's receipt of the unit. Most dealers
have floor plan financing arrangements with banks or other financing
institutions under which the lender advances all, or substantially all, of
the purchase price of the motorhome. The loan is collateralized by a lien
on the purchased motorhome. As is customary in the industry, the Company
has entered into repurchase agreements with these lenders. In general, the
repurchase agreements provide that in the event of default by the dealer on
its agreement to the lending institution, the Company will repurchase the
motorhome so financed. (See Note 6).
The Company has recorded an allowance for doubtful accounts to cover the
difference between recorded revenues and collections from customers. The
allowance and provision for bad debts are adjusted periodically based upon
the Company's evaluation of historical collection experiences, industry
trends and other relevant factors.
Inventories - Inventories are stated at the lower of cost or market, with
cost determined using the first-in, first-out basis. Inventories consist of
the following at December 31, 1995 and 1996:
1995 1996
Raw materials $4,412,000 $6,608,000
Work-in-Progress 1,459,000 2,753,000
Finished Goods 2,780,000 4,432,000
Total $8,651,000 $13,793,000
Property and Equipment - Property is recorded at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
based on the straight-line method over the estimated useful lives of the
assets, which range from 2 to 31.5 years.
Fair Value of Financial Instruments - The recorded values of the Company's
financial instruments approximate their fair values. At December 31, 1996,
the difference between the rate of interest related to the company's
long-term debt and other comparable costs of funds was insignificant.
Revenue Recognition - The Company derives revenue primarily from the
shipment of motorhomes to dealers across the United States. Revenue is
recognized when dealers accept delivery of a motorhome. Revenues are also
generated from the service of motorhomes and from shipment or installation
of parts and accessories.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Income Taxes - Deferred income tax assets and liabilities are recognized
based on differences between financial statement and income tax bases of
assets and liabilities that will result in taxable or deductible amounts in
the future. Such deferred income tax asset and liability computations are
based on presently enacted tax laws and rates. Valuation allowances are
established, when necessary, to reduce deferred income tax assets to the
amounts expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred income tax assets and liabilities.
Net Income per Share - Net income per share is based on the weighted average
number of common shares outstanding plus the effect of stock options, using
the Treasury Stock method, when dilutive. Primary earnings per share
approximates fully diluted earnings per share.
Use of Estimates in the Preparation of the Financial Statements -The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported therein. Due to inherent uncertainty involved
in making estimates, actual results reported in future periods may be based
upon amounts which differ from these estimates.
Recent Accounting Pronouncements - Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." Management periodically reviews the
recoverability of its long-lived assets based on expected future cash flows
or whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable.
Effective January 1, 1996, the Company adopted the disclosure requirements
of Financial Accounting Standards (SFAS) No. 123, " Accounting for
Stock-Based Compensations," SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair value
of the equity instrument awarded. The Company has elected to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. (See Note 7).
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995
and 1996:
Useful Lives 1995 1996
(In years)
Building and Land 31.5 $1,483,000 $4,240,000
Furniture, fixtures and equipment 5,7 572,000 1,226,000
Leasehold improvements 5 9,000 89,000
Autos and trucks 5,7 170,000 152,000
Construction in progress 2,086,000 ---
Total 4,320,000 5,707,000
Less accumulated depreciation and amortization ( 513,000) ( 822,000)
Property and equipment - net $3,807,000 $4,885,000
<PAGE>
NOTES TO FINANCIAL STATEMENTS
3. NOTES PAYABLE AND LINES OF CREDIT
The Company has available a $3,500,000 revolving line of credit with a bank
expiring on June 1, 1997. The bank charges the Company an annual rate of
prime plus 1% (prime plus 1% was 9.25% at December 31, 1996) whenever the
credit line is used. At December 31, 1996, no amounts were outstanding under
this line. All borrowings are collateralized by the Company's assets.
The Company has a $1,866,000 line of credit with General Motors Acceptance
Corporation, a chassis vendor. Borrowings under the line bears interest at
an annual rate of prime plus 1% (9.25% at December 31, 1996). All
borrowings are secured by the Company's assets. The outstanding balances
included in accounts payable at December 31, 1995 and 1996 were $105,000 and
$889,000 respectively.
The Company has a line of credit with another chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $2,600,000 limit. Borrowing under the line
bears interest at an annual rate of prime plus 1% (9.25% at December 31,
1996). All borrowings are secured by the Company's assets. The outstanding
balances included in accounts payable at December 31, 1995 and 1996 were
$1,847,000 and $3,041,000 respectively. Although the amount outstanding at
December 31, 1996 exceeded the credit limit, FMCC has agreed to extend
additional credit to the Company from time to time.
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
Promissory note payable to the City of Lancaster Redevelopment Agency,
240 monthly payments of $6,205 including principal
and interest at 5.93% per annum, note matures on October 2015.
The note is collateralized by building and land with a net book value
of approximately $969,000 at December 31, 1996. $852,000
Less: Current Portion 26,000
Long-Term debt $826,000
Future annual minimum principal payments due on long-term debt are as
follows:
Year Ending December 31,
1997 $ 26,000
1998 27,000
1999 29,000
2000 31,000
2001 32,000
Thereafter 707,000
Total $852,000
<PAGE>
5. INCOME TAXES
The components of income tax expense (benefit) are included in the following
schedule.
Years Ended
December 31,
1994 1995 1996
Current:
Federal $1,021,000 $1,090,000 $ 780,000
State 271,000 311,000 224,000
Total Current 1,292,000 1,401,000 1,002,000
Deferred:
Federal (14,000) (34,000) (124,000)
State 22,000 (7,000) (31,000)
Total deferred 8,000 41,000 (155,000)
Total provision for income taxes $1,300,000 $1,360,000 $ 847,000
The components of deferred tax assets (liabilities) at December 31, 1995
and 1996 are as follows:
1995 1996
FEDERAL STATE FEDERAL STATE
Current:
Warranty accrual $106,000 $28,000 $121,000 $32,000
Reserve for self insurance 31,000 8,000 124,000 32,000
Litigation accrual 7,000 2,000 56,000 15,000
State tax 90,000 63,000
Uniform capitalization and other 11,000 3,000 (3,000) (1,000)
Gross deferred tax asset 245,000 41,000 361,000 78,000
Non Current:
Depreciation (11,000) 5,000 (3,000) (1,000)
Net deferred tax assets $234,000 $ 46,000 $358,000 $ 77,000
The provision benefit for income taxes differs from the amount computed by
applying the statutory Federal income tax rate to income (loss) before
ncome taxes due to the following:
Years Ended
December 31,
1994 1995 1996
Income before income tax $3,255,000 $3,394,000 $2,131,000
Statutory Federal tax rate 35% 35% 35%
Expected tax (benefit) 1,129,000 1,188,000 746,000
State taxes net of Federal benefit 177,000 198,000 148,000
Permanent Differences 6,000 14,000 20,000
Other adjustments (12,000) (40,000) (67,000)
Provision for income taxes $1,300,000 $1,136,000 $ 847,000
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
Rent Expense - Rent expense for facilities incurred on a month to month
lease for the years ended December 31, 1995 and 1996 was approximately
$196,000 and no rent expense for 1996.
Reserve for Self-insurance - The Company is self-insured for workers'
compensation in California. At December 31, 1995 and 1996, the Company had
accrued $365,000 and $365,000 respectively, for claims incurred and incurred
but not reported as calculated by the State. The Company is required by the
State of California to maintain a stand-by letter of credit with a bank
related to its self-insurance. The amount of the letter of credit was
$400,000 at December 31, 1996.
Repurchase Agreements - Motorhomes purchased under financing agreements by
dealers are subject to repurchase by the Company at dealer cost plus unpaid
interest in the event of default by the dealer. To date repurchases have not
resulted in significant losses. During 1995 and 1996, the Company
repurchased approximately $1,100,000 and $1,680,000 respectively, of
motorhomes under these agreements. However, in 1996, the Company
repurchased motorhomes at a cost of over $5,000,000, not required under the
repurchase agreements, which were resold at a loss. At December 31, 1995
and 1996, approximately $13,750,000 and 17,528,000 respectively, of dealer
inventory is covered by repurchase agreements.
Legal - The Company is a defendant in various legal proceedings. Company
counsel and management believe that these actions should not result in
significant liability to the Company with one exception. The exception
involves a suit (Case No. 752188) filed in the Superior Court of Orange
County, California in September of 1995 by the owners of five motorhomes
(which later became six motorhomes) of whom allege that Rexhall misled
consumers by advertising that the steel structure the Company refers to as
a "unibody roll cage" contains more steel than is actually contained in the
motorhomes and is neither a true roll cage nor a unibody structure.
Plaintiffs further allege, among other things, that the quality control in
Rexhall's motorhomes is inadequate. The complaint seeks equitable relief
and unspecified damages and/or restitution in an amount to be proven at
trial, as well as attorneys' fees and costs and pre-judgment interest. The
Company reports that there have been no accidents, injuries, or incidents
reported which involve or question the structure of its motorhome. The
Company has continued to aggressively defend itself and its dealerships (at
December 31, 1996 only California dealerships are involved) against the
allegations listed in the complaint and has therefore increased its reserves
and actual costs in the area of litigation. The Company is represented by
the Law Offices of Genson, Even, Crandall, and Wade based in Irvine,
California. At December 31, 1996, the suit was still pending certification
by the court and no trial date has been scheduled. Included in other
accrued liabilities at December 31, 1996 are legal reserves of $166,000.
7. STOCK OPTIONS
The Company has granted stock options under its Incentive and Nonstatutory
Stock Option Plan (the "Plan"), which provides for the granting of (i)
incentive stock options to key employees, pursuant to Section 422A of the
Internal Revenue Code of 1986, and (ii) nonstatutory stock options to key
employees, directors and consultants to the Company designated by the Board
as eligible under the Plan. Under the Plan, options for up to 225,000 shares
may be granted. Options granted and outstanding under the Plan expire in
five years and become exercisable and vest in annual increments from two to
<PAGE>
three years. The maximum term of each option may not exceed 10 years. The
following table summarizes the change in outstanding employee options:
Number of Range of Options Weighted Average
Options Prices per Share Exercise Price
Outstanding options
at January 1, 1994 225,000 $ 2.75 - 4.88 $ 3.57
Options exercised (49,000) 4.88 4.88
Outstanding options
at December 31, 1994 176,000 3.21
Options granted 21,000 3.25 3.25
Options canceled (33,000) 3.25 - 4.88 3.50
Outstanding options
at December 31, 1995 164,000 3.16
Options exercised (10,000) 3.25 3.25
Options canceled (20,000) 3.25 3.25
Outstanding options
at December 31, 1996 134,000 2.75 - 3.25 3.14
The following table summarizes information about stock options outstanding
at December 31, 1996:
Number Weighted
Exercise Outstanding at Average Remaining Weighted Average
Price December 31, 1996 Contractual Life Exercise Price
$2.75 30,000 1.33 $2.75
$3.25 104,000 1.33 3.25
134,000 1.33 3.14
Shares Exercisable Weighted Average
at December 31, 1996 Exercise Price
30,000 $ 2.75
98,500 3.25
128,500 3.13
All stock options under the Plan are granted at the fair market value of the
Company's common stock at the grant date. The weighted average estimated
fair value of options granted in 1995 was $31,000. No options were granted
to employees during 1996. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for the Plan.
Accordingly, no compensation cost for the Plan has been recognized in 1994,
1995 or 1996. Had compensation cost for the Plan been determined based on
the fair value at the grant dates for awards under the Plan consistent with
FASB Statement No. 123, "Accounting for Stock Based Compensation," the
Company's net income and earnings per share for the years ended December 31,
1995 and 1996 would have been reduced to the pro forma amounts indicated
below:
<PAGE>
Year Ended Year Ended
December 31, December 31,
1995 1996
Net income:
As reported $2,034,000 $1,284,000
Pro forma 2,027,000 1,277,000
Net income per common and common equivalent share:
As reported $0.74 $0.47
Pro forma $0.74 $0.47
The fair value of options granted under the stock option plan during 1996
was determined using the Black-Scholes option pricing model utilizing the
following weighted-average assumptions:
Year Ended
December 31,
1996
Dividend yield 0%
Anticipated volatility 49.47%
Risk-free interest rate 6.58%
Expected lives 4 years
During 1996, the Company granted 38,000 options at an exercise price of
$5.25 per share to a consultant for services received during that year. The
fair value of approximately $85,000, or $2.23 per share, related to these
options was computed as described above using the Black-Scholes option
pricing model and recorded as expense in 1996.
8. COMMON STOCK
In March 1996, the Company announced a 5% stock dividend of 125,030 shares
issued on April 17, 1996 to shareholders of record as of April 13, 1996.
All share and per share amounts have been retroactively adjusted for all
periods presented in the Company's financial statements to reflect the
dividend.
9. SIGNIFICANT CUSTOMERS
The Company had one major customer, Village RV, who accounted for 14.9% and
15.4% of the Company's sales during 1995 and 1996, respectively.
10. SUBSEQUENT EVENT
In April 1997, the Company recorded significant adjusting entries to its
fourth quarter operations of approximately $746,000 net of income taxes
primarily related to inventory and cost of goods sold.
<PAGE>
MARKET INFORMATION
Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock has traded in the over-the-counter market since
June 22, 1989 and sales and other information are reported in the NASDAQ
National Market System. The Company's NASDAQ symbol is "REXL". The
following table sets forth the range of high and low closing sale prices of
a share of the Company's Common Stock in the over-the-counter market for
each quarter since the first quarter of 1994 according to NASDAQ:
1994 High Low
First Quarter $ 8-3/4 $ 6
Second Quarter 10 7-3/8
Third Quarter 8-7/8 6-1/4
Fourth Quarter 8-1/4 5-3/4
1995 High Low
First Quarter $ 7-1/4 $ 5-1/2
Second Quarter 7-1/8 5
Third Quarter 6-1/4 5
Fourth Quarter 6-3/4 4-1/2
1996 High Low
First Quarter $ 7 $ 4-7/8
Second Quarter 8-1/8 6-1/4
Third Quarter 11 6
Fourth Quarter 10 6-1/2
<PAGE>
INDEPENDENT AUDITORS' REPORT
REXHALL INDUSTRIES, INC.:
We have audited the accompanying balance sheets of Rexhall Industries, Inc.
as of December 31, 1995 and 1996, and the related statements of operations,
changes in shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as 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 financial position of Rexhall Industries, Inc.
as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
April 11, 1997
<PAGE>
CORPORATE INFORMATION
Directors Registrar and Transfer Agent
William J. Rex U.S. Stock Transfer Corp.
Chairman, President and Glendale, CA
Chief Executive Officer
Don Hannay, Sr. Legal Counsel
Vice President Sales
Director Freshman, Marantz, Orlanski,
Cooper & Klein
Marco Martinez Beverly Hills, CA
Vice President and General
Manager (Elkhart Indiana Plant)
Director Auditors
Al J. Theis Deloitte & Touche,
Consultant Woodland Hills, CA
Director
Robert A. Lopez Form 10K
President of Nickerson Lumber and
Plywood A copy of the Company's Form 10K,
Director filed with the Securities and
Exchange Commission is available
without charge upon writing to:
Officers
Shareholders Relations
William J. Rex, President Rexhall Industries, Inc.
46147 7th STreet West
Donald Hannay, Sr., Vice President Lancaster, CA 93534
Sales Website:(http:/www.rexhall.com)
Marco Martinez, V.P. & General Manager
(Elkhart, Indiana Plant) Executive Offices
Cheryl L. Rex, Corporate Secretary Rexhall Industries, Inc.
46147 7th Street West
Lancaster, CA 93534
(805) 726-0565
<PAGE>
