UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM 10-K
(Mark One)
[x] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
OR
[ ]Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee required]
(No fee required)
For the Transition period from to
Commission file number: 0-10067
___________________________________
REXHALL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
California 95-4135907
(State or other jurisdiction of (IRS Employer Identification
No.) Incorporation or organization)
46147 7th Street West
Lancaster, CA 93534
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 726-0565
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange on which registered: NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
Indicate by check mark whether the registrant (1) 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 periods as the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of April 11, 1997 the aggregate market value of voting stock held by
non-affiliates was approximately $7,498,294. Shares of common stock held
by each officer, director and holder of 5% or more of the outstanding
Common Stock of the Registrant have been excluded in that such persons may
be deemed to be affiliates. Total shares of common stock held by those
deemed to be affiliates at April 11, 1997 totaled 1,303,000. This
determination of affiliate status is not necessarily a conclusive
determination of other purposes.
As of April 11, 1997 there were 2,636,030 shares of the Registrant's
common stock outstanding.
<PAGE>
PART I
Item 1. Business
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.
The Company began operations in July 1986 as a general partnership and
conducted business activities in that form until December 31, 1986, when
the assets and business of the partnership were contributed to Rexhall
Industries, Inc., a California corporation, which assumed the liabilities
of the partnership. Rexhall Industries, Inc. was incorporated in June 1986
and, except for organizational activities, conducted no operations until
January 1, 1987. In June 1989, the Company completed an initial public
offering of 1,150,000 shares of Common Stock (including 150,000 sold upon
exercise of the underwriters' over-allotment option). As used herein,
the "Company" refers to Rexhall Industries, Inc. and the predecessor
partnership.
The Company operates out of two main production facilities located
in Lancaster, California and Elkhart, Indiana (See Item 2. Properties).
The Company's corporate offices are located at its Lancaster facility.
Class A Motorhomes
Based upon industry standards established by the Recreation Vehicle
Industry Association ("RVIA"), the Company manufactures certain product
lines classified as conventional or class A motorhomes.
Conventional or class A motorhomes are self-powered vehicles built on
a motor vehicle chassis, with engine and drive train components which are
supplied by a motor vehicle manufacturer (i.e. Ford, GM, Spartan, and
Freightliner). The interior of the vehicle typically includes a driver's
area, kitchen, bathroom, dining and sleeping areas. Class A motorhomes
are self-contained with their own lighting, heating, cooking and
refrigeration facilities, waste disposal and water storage tanks,
permitting occupancy without requiring connection to utilities. While
not designed or intended as permanent housing, Class A motorhomes do
provide comfortable living quarters for short periods, particularly for
people interested in travel and outdoor recreational activities.
Class A motorhomes are different from mobile homes, which are
manufactured housing designed for permanent or semi-permanent residential
dwelling and, although movable, are not used for transportation. Class
A motorhomes are also different from other recreational vehicles, such as
class B van campers, which are smaller than, and do not provide all of the
features that typically are standard on, Class A motorhomes; Class C
mini-low profile and compact motorhomes, which are built on a van or small
truck chassis that is supplied with an engine and finished cab section and
are differentiated by size; and travel trailers, which are non-motorized
vehicles designed to be towed by automobiles, pick-up trucks and vans,
and generally by law may not be used as living quarters unless stationary.
Travel trailers are further classified as conventional, fifth wheel and
park trailers and generally are differentiated by the method and vehicle
employed for towing, size configuration and use. Other recreational
vehicle categories include folding camping trailers, truck campers and
van conversions.
As Class A motorhomes are self-contained with kitchen, bathroom
facilities and sleeping quarters, it is eligible to be treated as a
"qualified residence" under the Internal Revenue Code of 1986, as amended.
Thus, as in the case of other recreational vehicles suitable for overnight
use, a purchaser may generally deduct interest on debt incurred to acquire
a Class A motorhome provided the purchaser designates and uses it as one
of no more than two residences and otherwise meets the requirements of the
Internal Revenue Code of 1986.
<PAGE>
Industry
The following table sets forth comparisons of units and dollar sales
of all recreational vehicles and Class A motorhomes in the United States
(Industry source is the RV Market Report, Annual Review 1996 published
January 1997 by the Recreation Vehicle Industry Association in Reston,
Virginia) compared with units and dollar sales of the Company during
the years ended December 31, 1994, 1995 and 1996:
% Change % Change
Unit From Prior Revenues From Prior
Sales Year (000) Year
Total Recreational Vehicles
1996 466,800 (1.8)% 10,081,182 +2.1%
1995 475,200 (8.4)% 9,877,624 (0.8)%
1994 518,800 +20.8% 9,962,000 +3.9%
Class A Motorhomes
1996 36,500 +10.6% 2,305,788 +5.3%
1995 33,000 (11.5)% 2,189,913 +7.1%
1994 37,300 +16.9% 2,044,000 +2.4%
Rexhall Industries, Inc.
1996 1,170 +2.4% 64,959 +7.0%
1995 1,143 +15.1% 60,709 +21.2%
1994 993 +58.4% 50,090 +65.8%
The typical owner of a Class A motorhome is 60 years old, married,
has no children living at home and has an annual household income of
$40,000 to $45,000. Recreational vehicle ownership growth in the 1980's
was greatest among head of household, ages 55 or older. Based on these
statistics, the Company believes that, in the long term, the recreational
vehicle industry has the potential to expand as post-war "baby boomers"
begin reaching their fifties.
The Company's Motorhomes
The Company's motorhomes are built with attention to quality. The
materials used by the Company in constructing its motorhomes are commonly
found on more expensive models and, in the opinion of management,
generally are superior to those found on motorhomes in the same price range
as the Company's motorhomes. The Company uses only steel, as opposed to
wood or aluminum, in framing its steel cage. The Company uses a gel coated,
high gloss, one-piece fiberglass for the sidewalls, front cap, rear cap and
roof, giving the look of a more expensive motorhome and eliminating many of
the seams commonly found in most motorhomes. Additionally, fiberglass
generally allows easier repair of collision marks and scrapes as opposed to
aluminum, the other materials commonly used in sidewall construction. For
insulation, the Company uses polyurethane foam and polystyrene.
The Company's motorhomes are also built with attention to aerodynamics.
Each motorhome has a streamlined bus-front cap that tapers to a width
broader at the junction with the sidewalls than at the leading edge of the
nose. That styling, coupled with rounded corners throughout the coach,
permits a smoother ride, particularly in high winds or when the motorhome
is passed by large trucks and trailers.
<PAGE>
The Company currently offers four lines of Class A motorhomes. The
Class A product lines are Aerbus, Rexair, Rollsair, and Vision.
The Company's Class A line offers many models and floor plans with
multiple decors. These various models come with the following chassis
and engine types (See Item 1. Raw Materials and Chassis.):
- Ford chassis with a 460 CID (7.5 liter) electronic fuel
injection engine
- Chevrolet chassis with a 454 CID (7.4 liter) engine and the
new Vortec engine
- Spartan or Freightliner chassis with Cummins 250, 275 or 300
HP diesel pusher
Models range in size from an overall length of approximately 24 feet
to approximately 38 feet with a wheel base average of 158 inches to 228
inches. All models have an overall maximum width of eight and one half
feet (102" Wide body) with a height (with air conditioner) of
approximately 11 feet.
In addition to size or chassis, Rexair, Aerbus, Rollsair, and Vision
models are differentiated exterior graphics and some floor plan and
sleeping accommodations. Depending on the model, a Rexair, Aerbus, Rollsair,
and Vision motorhome are equipped to sleep four to six adults comfortably.
Standard features and equipment on all Rexhall models include 75 or 80
gallon gas tank (depending on chassis and model), halogen headlights, dash
air conditioning, double door flush mounted refrigerator/freezer, three
burner range with automatic pilot and optional conventional oven, radial
tires, stabilizing air bags, 30,000 B.T.U. furnace, day/night shades and
extra large batteries mounted on a slide-out tray for easy access and
service. Additional standard equipment includes a television, television
antenna, AM/FM stereo radio with cassette player, auxiliary power
generators, convection microwave oven, roof air conditioners, and video tape
player. Optional equipment include leak detector for propane, back up
camera, washer and dryer, hydraulic leveling jacks, electric and heated
mirrors, 50 AMP service, ice maker and power entry step for easier entry
into the motorhome, some models may vary in standard equipment.
Suggested retail prices of Rexair, Aerbus, or Rollsair models with
standard equipment range from approximately $76,500 to $150,000 (diesel
models) and fully equipped with all available options from approximately
$91,500 to $165,000. Suggested retail prices for the Vision models (entry
level) with standard equipment range from approximately $61,500 to $64,500
(add $4,000 for available options).
Specialty Vehicles
In addition to its line of Class A motorhomes, the Company also
manufactures and sells specialty vehicles. These vehicles are designed for
diverse purposes and varied users, such as mobile testing by a health care
provider, command units by a police department and Canadian fire
department, post office facilities by the United States Postal Service and
classrooms by a school district. During 1994, 1995, and 1996, sales of
specialty vehicles amounted to less than 1% of total revenues. Although the
Company has no plans to phase out its specialty vehicle business, it
anticipates that such business will constitute a low percentage of the
Company's overall revenues in the future.
Production
The Company's manufacturing facilities have been designed to permit
production of motorhomes on an assembly-line basis. At the beginning of
the line and in an effort to achieve uniformity, a partial steel cage is
pre-assembled by the Company on a jig. The steel cage is welded together
<PAGE>
on the jig and then welded to a wall that is welded directly to the chassis
to form what the Company terms a "uni-body" design. Steel outriggers are
welded in place to support floor and basement storage compartments.
Seamless gel coated fiberglass is vacuum bonded to a steel frame to
form the exterior walls; additionally, the roof wall is vacuum bonded.
When all the exterior walls are in place, polyurethane foam insulation
is sprayed inside the ceiling radius to fill voids and further bond the
exterior shell to the frame. Exterior doors and interior paneling complete
the basic construction. Vehicle components, cabinet work, auxiliary power
units, appliances, plumbing fixtures, floor coverings, window treatments,
hardware, furniture and furnishings are then added. Vehicle components,
power units, appliances, plumbing fixtures, floor coverings, hardware and
most furnishings are purchased in finished form from various suppliers, none
of which are a sole source.
The California plant manufactures its own driver's door, compartment
doors, grills, bumpers, cabinet work, draperies, fiberglass parts and also
makes some of the furniture used in its motorhomes. The Elkhart plant also
manufacturers many of its parts however does not produce its own fiberglass
parts, and must rely on the California facility to produce its driver's
doors.
The Company plans to continue this practice of producing many of the
components and certain of the production equipment used in the
manufacturing of its motorhomes as long as such practice is practical and
results in cost savings.
The Company operated one production shift at two facilities producing
an average of 103 units (73 in Calif; 31 in Indiana) per month during 1996.
Total gross units produced between both plants in 1996, was 1,245 units
(875 in Calif; 370 in Indiana). At December 31, 1996, maximum production
capacity utilizing existing facilities is estimated at 250 units per month.
Unit production increases can be achieved at relatively low cost on the
existing production shift by increasing the number of production employees
at both facilities (See Item 2. Properties).
Raw Materials and Chassis
The principal raw materials used in the manufacturing process are
steel, fiberglass, lumber, plywood and plastic. These materials are
purchased from third parties and are generally available from numerous
sources. The Company has not experienced any significant delays or problems
in acquiring raw materials needed for production.
The principal component used in the manufacturing process is the
chassis, which includes the engine and drive train. The Company obtains
front engine chassis from Ford Motor Company and Chevrolet Motor Division
(GM Corporation). Rear engine pushers are purchased from Spartan Motors,
and Freightliner under separate arrangements. The Company acquires Ford
and GM products under converters agreement which are used by the Company to
purchase the chassis with financing provided by the supplier's affiliates.
The financing provided to obtain chassis under the converter agreements bear
interest at the rate prime plus 1% for both lenders (9.25% at December 31,
1996) and is secured by the Company's assets. Upon starting production of
the motorhome, the Company is required to pay to the lender the amount
advanced for the purchase of the underlying chassis plus accrued interest.
The rear engine diesel chassis from Freightliner and Spartan each have net
30 day terms. Approximately 96.5% of all chassis are purchased from Ford
and GM.
As is standard in the industry, arrangements with chassis suppliers
provide that either the Company or the chassis supplier may terminate their
relationship at any time. To date, the Company has not experienced any
<PAGE>
substantial shortages of chassis. The recreational vehicle industry as a
whole has from time to time experienced shortages of chassis due to the
concentration or allocation of available resources by suppliers of chassis
to the manufacturers of vehicles other than recreational vehicles or for
other causes. If either or both of the Company's suppliers were to
discontinue the manufacturing of motorhome chassis, materially reduce their
availability to the recreational vehicle industry in general, limit or
terminate their availability to the Company, the Company could be adversely
affected.
Sales and Distribution
Sales are usually made to dealers on either a C.O.D. basis or on terms
requiring payments 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.
The Company's liability under the repurchase agreements is limited to
the total unpaid balance (including interest and other charges) owed to the
lending institution by reason of its extension of credit to purchase the
Company's motorhomes. The contingent liability under repurchase agreements
varies significantly from time to time, depending upon shipments. At
December 31, 1995 and 1996 the Company's contingent liability was
approximately $13,750,000 and $17,528,000 respectively. The risk of loss
under these agreements is spread over numerous dealers and financing
institutions and is further reduced by the resale value of any motorhomes
that may be repurchased. To date, the Company's losses under these
repurchase agreements have been minimal. 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. These repurchases
related primarily to operating matters at the Indiana facility.
Advertising and Promotion
The Company advertises its motorhomes to consumers in recreational
vehicle magazines and to dealers in trade publications and also uses
point-of-purchase promotional materials. Its promotional activities
generally consist of participation at two major recreational vehicles shows
(Pomona Show in California and Louisville Show in Kentucky) held during the
year, as well as local recreational vehicles shows held by its dealers.
The company also advertises its product on the World Wide Web under the
following site: http://www.rexhall. com. E-Mail responses from consumers
shows great promise for this advertising media.
Seasonality and Backlog
The recreational vehicle business generally has been seasonal with most
sales occurring in the months of February through October, with November
through January sales being considerably slower.
Historically, the Company does not maintain a significant inventory of
finished motorhomes. However, the Elkhart facility experienced a
<PAGE>
substantial increase in finished inventory during the third and fourth
quarters of 1996 due to a decrease in sales in the East. Production is
based on dealer orders and shipments which usually occur within four to
eight weeks of the receipt of an order. At December 31, 1994, 1995 and
1996, the Company's backlog of dealer orders believed to be firm was
$3,200,000, $2,650,000, and $3,688,000 respectively. Because dealer orders
not only fluctuate, but by industry custom, are cancelable without penalty,
and because motorhomes have a relatively short manufacturing cycle, the
Company believes that backlog is not necessarily a reliable indication of
future sales.
Product Warranty
The Company currently provides retail purchasers of its motorhomes with
a limited warranty against defects in materials and workmanship for 12
months or 12,000 miles measured from date of purchase, or upon the transfer
of the vehicle by the original owner, whichever occurs first. The Company's
warranty excludes certain specified components, including chassis, engines
and power train, which are warranted separately by the suppliers. Warranty
expense was $382,000, $775,000 and $959,000 for the years ended December
31, 1994, 1995, and 1996 respectively. The increase in warranty cost comes
mostly from the Indiana facility. In most cases, warranty work is performed
by a member of the Company's dealer network. The Company owns and operates
two service facilities; one in Lancaster, California and the other in
Elkhart, Indiana. The Company is now using both facilities to accomplish
warranty repairs which normally would have been performed by one its
dealers. Management believes that these RV Sales and Service Centers will
allow the Company the benefit of providing better customer service and
satisfaction.
Competition and Other Business Risks
Competition in the manufacture and sale of motorhomes and other
recreational vehicles is intense. The Company has been manufacturing Class
A motorhomes for eleven years and competes with many manufacturers (such as
Fleetwood, National RV, Damon, Thor Industries, and Coachman), several
having multiple product lines of Class A motorhomes and other recreational
vehicles and most being larger and having substantially greater financial
and other resources than the Company. The Company sells motorhomes in
approximately 40 of the 48 contiguous states. Additionally, the Company
sells to approximately 15 dealers in Canada. The Company believes that the
quality, design and value offered by its motorhomes to be appealing to the
consumer market.
The Company, like others in the recreational vehicle industry, is
dependent upon the availability and terms of financing to dealers and
retail purchasers. Substantial increases in interest rates, the
tightening of credit, a general economic downturn or other factors
negatively affecting the amount of consumer's disposable income could have
a material adverse impact on the Company's business.
Shortage of gasoline have in the past had a materially adverse effect
on the recreational vehicle industry as a whole and could have a materially
adverse effect on the Company's business in the future. In addition, a
substantial increase in the price of gasoline could also adversely affect
the sale of the Company's motorhomes.
Except for the historical information presented, forward-looking
Statements are made oly as of the date made, based upon factors known to
management at the time. We are aware that material prices may increase
and have assumed that we will have no undue difficulty passing on these
costs without adversely affecting sales. We have also assumed that employee
relations continue to be favorable, that the orders on hand are not
canceled by dealers, and that no unusual workers' compensation or legal
claims other than those mentioned in Item 3 adversely affect the Company.
<PAGE>
In the short term, weather factors are often more significant in winter and
may severely restrict deliveries to the Elkhart plant from suppliers.
General economic conditions and consumer uncertainty or lack of confidence
may result in delayed purchases of recreational vehicles is highly seasonal,
so the results of operations will vary greatly at different times of the
year. The Company has assumed that the current generation of retirees and
the emerging generation of retirees will have the same interest in
purchasing recreational vehicles, an assumption which has not yet been
tested and may not be appropriate. We are aware that unpredictable events
can and do occur and cannot assure anyone that adverse events will not
take place. The manufacture and sale of recreational vehicles is a complex
and difficult business with many unforseen events and conditions beyond the
control of manufacturers. We do not intend to update statements made in
this report or elsewhere.
Regulation
The Company is subject to the provisions of the National Traffic and
Motor Vehicle Safety Act and the safety standards for recreational vehicles
<PAGE>
and components which have been promulgated thereunder by the Department of
Transportation. The regulations under that legislation permit the National
Highway Traffic Safety Administration to require a manufacturer to remedy
vehicles containing "defects related to motor vehicle safety" or vehicles
that fail to conform to all applicable Federal Motor Vehicles Safety
Standards. The National Traffic and Motor Vehicles Safety Act also provides
for the recall and repair of recreational vehicles that contain certain
hazards or defects.
The Company relies on certifications obtained from chassis suppliers
with respect to compliance of the Company's vehicles with applicable
emission control standards. The Company believes that its facilities and
products comply in all material respects with applicable environmental
regulations and standards.
The Company is a member of the RVIA (Recreational Vehicle Industry
Association). This association has promulgated stringent standards for
health and safety in connection with the manufacture of recreational
vehicles. Each of the units manufactured by the Company has a RVIA seal
placed upon it to certify that such standards have been met. The Company's
facility is periodically inspected by government agencies and the RVIA
to ensure that the Company's motorhomes comply with applicable governmental
and industry standards.
Patents and Trademarks
The Company claims Aerbus', Rexair', Rollsair', and Vision' as
trademarks but believes its business is not dependent on these names or any
other marketing device. The Company does not have any patents or licenses
in the conduct of its business.
Employees
At December 31, 1996, the Company had a total of 373 employees (262 in
California and 111 in Indiana). None of the Company's employees is
represented by a labor union. The Company considers its relations with its
employees to be good.
<PAGE>
Item 2. Properties
Until December 1995, the Company's executive offices and manufacturing
facilities were located in one building comprising approximately 80,000
square feet in Saugus, California, approximately 30 miles North of Los
Angeles. The Company occupied this facility under a long-term operating
lease until March 1992 when the Company successfully renegotiated the terms
of the lease providing for lower payments on a month to month basis. The
lease rate in 1995 was approximately $15,889 per month. The Company vacated
from its leased facility in December 1995 and moved into its newly
constructed 87,000 square foot building in Lancaster, California. The new
facility, built at a cost of approximately $2.2 million, enables the Company
to benefit financially by eliminating its previous lease expense. The new
facility was designed by management to insure efficiency and to specifically
position the company with the opportunity to meet increase production
demands based on orders that continue to rise on a yearly basis. In
September 1996, expansion construction began at the Lancaster site. The new
addition will provide an additional 19,320 square feet of production space.
The Lancaster facility is debt free with no mortgages on the facility.
The Company owns and operates a 97,000 square foot facility on 12 acres
in Elkhart, Indiana. The site houses three buildings which all serve to
produce motorhomes. Prior to Rexhall's purchase of the plant, Mallard
Coach owed the facilities and also manufactured Class A motorhomes. The
Elkhart facility is debt free with no mortgages on the property.
In September 1995, the Company purchased a 4.5 acre site located in
Lancaster, California 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. At December 31, 1996, the
Company was indebted to the City of Lancaster Redevelopment Agency an amount
of $852,000 with interest at 5.93% per annum due October 2015. The
promissory note is collateralized by the Lancaster land and building with a
net book value of approximately $938,000 at December 31, 1996. The Company
leased a portion of the facility to Village RV from the period of April -
December 1996. Village RV is the Company's major retail dealer.
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.
The Company believes that its facilities are adequate to meet its
foreseeable needs.
Item 3. Legal Proceedings
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
<PAGE>
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 had been scheduled.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the vote of security holders during the
fourth quarter of 1996.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
Market Information.
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 6-3/4 5
Fourth Quarter 6-1/4 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
Holders
At April 11, 1997, the Company had 77 shareholders of record.
<PAGE>
Item 6. Selected Financial Data.
The following selected financial information of the Company should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto of the Company included elsewhere herein. The following table
presents selected historical financial data of the Company for each of
the five fiscal years in the period from December 31, 1992 through December
31, 1996. The financial information as of and for each of the five years
in the period ended December 31, 1996 were derived from audited financial
statements of the Company.
Statement of Operations Data:
Year Ended December 31,
1992 1993 1994 1995 1996
(in thousands except per-share data)
Revenues $12,384 $30,218 $50,090 $60,709 $64,959
Cost of Goods Sold 11,826 25,723 43,184 51,981 56,167
Gross Profit 558 4,495 6,906 8,728 8,792
Selling, General, and
Administrative Expenses 2,459 2,828 3,841 5,281 6,426
Income (Loss) from Operations(1,901) 1,667 3,065 3,447 2,366
Restructuring Costs (395) --- --- --- ---
Interest Income 94 121 181 69 29
Interest Expense (91) (26) (48) (136) (171)
Other Income(Expense) -- 26 24 14 (93)
Income(Loss) Before
Income Taxes (2,293) 1,788 3,222 3,394 2,131
Provision (Benefit) for Taxes (829) 580 1,300 1,360 847
Net Income (Loss) ($1,464) $1,208 $1,922 $2,034 $1,284
Net Income(Loss) Per Share(1) ($.58) $.48 $.71 $.74 $.47
Weighted Average Shares
Outstanding(1) 2,529,680 2,515,697 2,720,349 2,731,057 2,725,131
Balance Sheet Data:
December 31,
1992 1993 1994 1995 1996
(in thousands)
Working Capital $6,233 $6,901 $8,858 $9,269 $9,519
Total Assets 9,037 12,608 15,991 19,975 23,496
Long Term Debt
less Current Portion --- --- --- 852 826
Shareholders Equity 6,451 7,633 10,376 12,225 13,581
(1) Adjusted to give effect to a 5% stock dividend of 125,030 share on
April 17, 1996.
<PAGE>
Item 7. 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
Year Ended December 31,
1994 1995 1996
Revenues 100.0% 100.0% 100.00%
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 from operations 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 such factors as 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 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 increased was due to the increase in the number
optional equipment, items offered and product improvements combined with
increase 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. Increase occurred
in several areas including warranty costs, legal expense, dealer's rebates,
and in sales incentive ("Spiff") payments to sales people. Dealer's rebates
issued in 1995 and 1996 served the Company well in 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.
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 optional equipment, items offered and product improvements
combined with increase 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
<PAGE>
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 forseeable
future.
<PAGE>
Item 8. Financial Statements
REXHALL INDUSTRIES, INC.
BALANCE SHEETS
December 31, 1995 and 1996
ASSETS (Note 3) 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 8,651,000 13,793,000
Other current assets 163,000 151,000
Income tax receivable --- 271,000
Deferred income taxes 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
2,630,000 at December 31, 1996 6,416,000 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 (155,000)
Provision for deferred income taxes 8,000 (41,000) 1,855,000
Options issued to consultant --- --- 85,000
(Increase)decrease in accounts receivable(1,044,000) (1,156,000) (5,142,000)
Increase in inventories (2,688,000) (1,230,000) ---
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 investment 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 exercise of stock options 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>
REXHALL INDUSTRIES, INC.
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 dealer accept delivery of the motorhome. Revenues are
<PAGE>
also generated from the service of motorhomes and from shipment or
installation of parts and accessories.
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 Disponsed 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
Compensation," 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 2,7 572,000 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 ---
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
In 1996, the Company wrote-off $39,000 in fully depreciated property and
equipment.
<page
3. 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 land and building with a net book value of approximately
$938,000 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
Other accrued liabilities 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 for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before income 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 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 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. At December 31, 1995 and 1996,
approximately $13,750,000 and 17,528,000 respectively, of dealer inventory
is covered by repurchase agreements.
Bonus - On August 1, 1996, the Company renewed for 5 years (expires July 31,
2001) an employment agreement with the President and Chief Executive
Officer. The employment agreement provides for an annual salary of $250,000
plus a bonus determined monthly equal to 10% before bonus and taxes.
Other executive officers are compensated based on the following factors as
determined by the Board of Directors: (1) the financial results of the
Company during the period year, (2) compensation paid to executive officers
in prior years, (3) extraordinary performance during the year and (4)
compensation of executive officers employed by competitors.
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
<PAGE>
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 three years. The maximum term of each option may not exceed 10
years. The following table summarizes the changes 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:
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
<PAGE>
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. FOURTH QUARTER RESULTS
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. The inventory was devalued downward
due to repurchased and discounted motorhomes received back into inventory
and additionally accruals were increased for warranty repairs and sales
rebates.
<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
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Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers and directors of the Company and their ages as
of April 9, 1997 are as follows:
Name Age Positions Held Director Term
William J. Rex(1)(2) 46 Chairman of the Board of 6/01/96 thru
Directors, CEO and President 5/31/97
Donald C. Hannay, Sr. 69 Vice President of Sales 6/01/96 thru
and a Director 5/31/97
Al J. Theis(1)(2) 79 Director 6/01/96 thru
5/31/97
Robert A Lopez(1)(2) 57 Director 6/01/96 thru
5/31/97
Marco A. Martinez(3) 38 Vice President, General Manager 11/15/96 thru
and Director 5/31/97
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Mr. Martinez was appointed this position after the Board of Directors
received notification that Johnny Culbertson had resigned his position in
November of 1996.
Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed by and
serve at the discretion of the Board of Directors. The Company has an
"executive officer" within the meaning of the rules and regulations
promulgated by the Securities and Exchange Commission. Except for William
J. and Cheryl Rex, who are husband and wife, there are no family
relationships between any directors or officers of the Company. For their
services as members of the Board of Directors, outside directors receive
$350 for each Board meeting attended.
The Company has complied with Section 16(a) of the Exchange Act and
there has been no changes in beneficial ownership.
Mr. Rex, a founder of the Company, has served as the Company's Chief
Executive Officer from its inception as a general partnership to date. Upon
commencing operations in corporate form, Mr. Rex became the Company's
President and Chairman of the Board, offices which he continues to hold.
From March 1983 until founding the Company, Mr. Rex served in various
executive capacities for Establishment Industries, Inc., a manufacturer of
Class A and Class C motorhomes which was acquired in June 1985 by Thor
Industries, Inc., a large manufacturer of recreational vehicles. His last
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position with Establishment Industries, Inc. was President. From 1970 until
March 1983, Mr. Rex was employed in various production capacities by Dolphin
Trailer Company, a manufacturer of a wide range of recreational vehicles
products. At the time he left Dolphin Trailer Company (which changed its
name to National R.V., Inc. in 1985), Mr. Rex was Plant Manager in charge of
all production and research and development.
Mr. Hannay, Sr. joined the Company in December 1987 and is responsible
for product sales. He became a director in May 1989. From April 1982 until
August 1987, he was employed by Establishment Industries, Inc. as Vice
President, Sales and Marketing, where he built Establishment's dealer
network and was responsible for dealer sales. From August 1987 until
joining the Company, he was employed as General Sales Manager by Komfort
Industries of California, Inc., a recreational vehicle manufacturer located
in Riverside, California.
Mr. Theis joined the Company as its Chief Financial Officer and a
member of the Board of Directors in August 1987. In February 1991, he
resigned as Chief Financial Officer and began serving the Company as a
consultant, for financial matters and in development of global sales. He
continues to serve as a member of the Board of Directors. From July 1984
until joining the Company, Mr. Theis was self-employed as a management
consultant to recreational vehicles industry manufacturers. From February
1982 until June 1984, he was employed by Establishment Industries, Inc. as
Chief Financial Officer and Corporate Planner.
Mr. Robert A. Lopez is President of Nickerson Lumber and Plywood.
Mr. Lopez started his employment with Nickerson as an outside salesman in
1969 and in 1980 he became a partner and purchased Nickerson Lumber stock.
He was elected as President of Nickerson in 1981. His background in
marketing products is primarily to residential builders, manufactured
housing and recreational vehicle assemblers. Mr. Lopez will be a great
asset to further developments of marketing Rexhall products in both the
domestic and global markets. In his spare time, if any, Mr Lopez is captain
of the San Fernando Rangers, a non-profit organization working to use horses
as therapeutic conditioning for mentally and physically disabled children.
Mr. Marco A. Martinez began his employment with Rexhall in March of
1995. He was appointed the position of General Manager and Vice President
of Elkhart, Indiana effective November 7, 1996. Prior to this Mr. Martinez
served the Company as Executive Director of Administration and Director of
Legal Affairs.
<PAGE>
Item 11. Executive Compensation.
Cash Compensation
The following table sets forth certain information as to the five
highest paid(1) of the Company's executive officers whose cash compensation
exceeded $100,000 for the year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other Annual
Principal Position Year Salary ($) Bonus($) Compensation(2)
William J. Rex 96 250,000 199,890 --------
President & CEO 95 250,000 324,000 --------
94 250,000 358,000 --------
Donald C. Hannay, Sr. 96 52,800 171,550 --------
V.P. of Sales & Marketing 95 53,800 168,000 --------
94 42,000 158,000 --------
Juan Arias(3) 96 73,600 99,100 -------
V.P. of Production 95 85,000 114,000 -------
94 83,000 117,000 -------
(1) Note: Only three executive officers received cash compensation in
excess of $100,000.
(2) The unreimbursed incremental cost to the Company of providing
perquisites and other personal benefits during 1996 did not exceed, as
to any named officer, the lesser of $50,000 or 10% of the total 1996
salary and bonus paid to such named officer and, accordingly, is
omitted from the table. These benefits included (I) reimbursement for
medical expenses and (ii) amounts allocated for personal use of a
company-owned automobile provided to Mr. Rex.
(3) Not a complete year for Juan Arias, resigned November 1996.
Compensation Committee Report
On August 1, 1996, the Company renewed for 5 years (expires July 31,
2001) an employment agreement with William Rex. The employment agreement
provides for an annual salary of $250,000 plus a bonus determined monthly
equal to 10% before bonus and taxes. Other executive officers are
compensated based on the following factors as determined by the Board of
Directors: (1) the financial results of the Company during the prior year,
(2) compensation paid to executive officers in prior years, (3)
extraordinary performance during the year and (4) compensation of executive
officers employed by competitors.
Directors who are not Executive Officers are paid $350 per Board
Meeting and there are four Board Meetings per year.
The Company also has an incentive program under which it pays
supervisory employees involved in the sales and production a cash bonus
based on specific performance criteria. Committee members: William J. Rex,
Robert A. Lopez and Al J. Theis.
<PAGE>
Stock Option Plan
In May 1989, the Company adopted the 1989 Incentive and Nonstatutory
Stock Option pursuant to Section 422A of the Internal Revenue Code of 1986,
as amended, to (i) key employees, and (ii) to directors and consultants to
the Company designated by the Board as eligible under the Option Plan.
Under the Option Plan, options for up to 225,000 shares may be granted.
The Option Plan is administered by the Board of Directors or by a
committee appointed by the Board, which determines the terms of options
granted, including the exercise price, the number of shares subject to the
options, and the terms and conditions of exercise. No option granted under
the Option Plan is transferable by the optionee other than by will or the
laws of descent and distribution, and each option is exercisable during the
lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the Option Plan
must be at least equal to the fair market value of such shares on the date
of grant, and the maximum term of each option may not exceed 10 years. With
respect to any participant who owns stock possessing more then 10% of the
voting rights of the Company's outstanding capital stock, the exercise price
of any stock option must be not less than 110% of the fair market value on
the date of grant and the maximum term of such option may not exceed five
years. Stock appreciation rights are not authorized under the Option Plan.
Options/SAR Grants
Number of % of Total
Securities Option/SARs
Underlying Grants to
Options/SARs Employees in Exercise or Base Expiration
Name Year Granted(#) Fiscal Year Price($/SH) Date
William J. Rex 1996 -0- -0- -0- -0-
1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
William M. Hill(1) 1996 -0- -0- -0- -0-
1995 10,000 48% $3.25 2/2000
1994 -0- -0- -0- -0-
Donald C. Hannay 1996 -0- -0- -0- -0-
1995 11,000 52% $3.25 2/2000
1994 -0- -0- -0- -0-
(1) Mr. Hill resigned from the Company in February, 1995.
<PAGE>
Option/SAR grants Canceled
Number of Securities % of Total Option
Underlying Options/SARs Grants canceled Base Price
Name Year Grants Canceled(#) to employees (S/SH)
William J. Rex 1996 -0- -0- -0-
1995 -0- -0- -0-
1994 -0- -0- -0-
William M. Hill(1) 1996 10,000 100% $3.25
1995 -0- -0- -0-
1994 -0- -0- -0-
Donald C. Hannay 1996 -0- -0- -0-
1995 -0- -0- -0-
1994 -0- -0- -0-
Juan Arias 1996 -0- -0- -0-
1995 11,000 39% $3.25
1994 -0- -0- -0-
(1) Mr. William M. Hill resigned from the Company in February 1995.
Aggregated Option/SAR Exercises in last FY
and Fy-End Options/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($) Unexercisable Unexercisable(1)
William J. Rex -0- -0- 112,000/-0- $505,000/-0-
Donald C. Hannay -0- -0- 16,000/6,000 $72,000/24,000
Juan Arias -0- -0- -0- -0-
(1) 12/31/96 close price $7-5/8 vs. option price.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the ownership of
the Company's Common Stock by (I) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock,
(ii) each of the Company's directors beneficially owning Common Stock and
(iii) all of the Company's officers and directors as a group as :
Number of
Name of Beneficial Owner Shares Percent of
Outstanding Beneficially Shares at
or Identity of Group Owned (1) March 31, 1996
William J. Rex (1)..... 1,292,550 49.03%
c/o Rexhall Industries
46147 7th Street West
Lancaster, California 93534
All Directors and
Officers as a Group (5
persons) 1,303,000 49.43%
(1) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock Shown as Beneficially owned
by him, subject to applicable community property law.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
<PAGE>
PART IV
Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
Financial Statement
See Item 8
Financial Statement Schedule
All applicable financial statement schedules have been omitted since
required information is not present in amount sufficient to require
separate disclosure on the balance sheet or information is included
in the financial statements.
(3) Articles of Incorporation and By Laws. See 1992 10KSB
(3.1) Unaudited interim financial information for 1st, 2nd and 3rd
quarters for 1996.
(3.2) Revolving Credit Agreement dated May 22, 1996 between Company
and Bank of America.
(3.3) Authorized Ford Motor Company Converter Pool Agreement effective
6/27/90. See 1992 10KSB
(3.4) Supplemental information pursuant to Section 15D of Exchange Act
1) Proxy Statement dated 1997
2) 1996 Annual Report
(4) Instruments defining the rights of Holders of Common Stock. See
Page 24 of Prospectus dated 6/22/89. See 1992 10KSB.
(10) Material Contracts - Chevrolet Quality Approved Converter Program
dated 10/1/88. See 1992 10KSB.
(11) Statement re: Computation of per share earnings. See attached
labeled (Exhibit 11)
(13) Form 10Q is attached for 1st, 2nd, and 3rd quarter labeled
(Exhibit 13)
(22) Published report regarding matters submitted to vote (Proxy
statement)
(23) Consent of experts and counsel. See 1992 10KSB
(24) Power of Attorney Exhibits - Donald C. Hannay Sr., Robert A. Lopez,
Al J. Theis, and Marco A. Martinez all signed form 10-K for year
ended 12/31/96.
(28) Copy of State Insurance Annual Report for year ended 12/31/96
labeled (Exhibit 28).
<PAGE>
Signatures
In accordance with Section 13 or a5(b) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Rexhall Industries, Incorporated
(Registrant)
By /S/ William J. Rex
(Signature and Title)*
William J. Rex, President, CEO & Chairman
Date: April 29, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in capacities and on the
dates indicated.
By /S/ William J. Rex
(Signature and Title)*
William J. Rex, President, CEO & Chairman
Date: April 29, 1997
<PAGE>
Exhibit 11
REXHALL INDUSTREIS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
1994 1995 1996
Net Income $1,922,000 $2,034,000 $1,284,000
Weighted average number of
shares outstanding 2,599,301 2,647,280 2,630,258
Dilutive effect of stock options
using the treasury stock method 121,048 83,777 94,873
Number of shares used to compute
net income per share 2,720,349 2,731,057 2,725,131
Net income per share $ .71 $ .74 $ .47
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