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, 1997
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 March 18, 1998 the aggregate market value of voting stock held by
non-affiliates was approximately $6,623,858. 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 March 18, 1998 totaled 1,373,000. This determination of
affiliate status is not necessarily a conclusive determination of other
purposes.
As of March 18, 1998 there were 2,714,017 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 has operated 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 1997 published
January 1998 by the Recreation Vehicle Industry Association in Reston,
Virginia) compared with units and dollar sales of the Company during the
years ended December 31, 1995, 1996 and 1997:
% Change % Change
Unit From Prior Revenues From Prior
Sales Year (000) Year
Total Recreational Vehicles
1997 438,800 (6.0)% 9,696,588 (3.8)%
1996 466,800 (1.8)% 10,081,182 +2.1%
1995 475,200 (8.4)% 9,877,624 (0.8)%
Class A Motorhomes
1997 37,600 +3.0% 2,629,180 +14.0%
1996 36,500 +10.6% 2,305,788 +5.3%
1995 33,000 (11.5)% 2,189,913 +7.1%
Rexhall Industries, Inc.
1997 1,082 (7.5)% 63,012 (3.0)%
1996 1,170 +2.4% 64,959 +7.0%
1995 1,143 +15.1% 60,709 +21.2%
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 cage. The Company uses gel coated, high gloss,
one-piece fiberglass panel 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 material 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 six lines of Class A motorhomes. The
product lines are Aerbus, Rexair, RoseAir, Vision, Anthem and American
Clipper.
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 415 CID (6.8 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 23 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, RoseAir, Vision, Anthem
and American Clipper models are differentiated by exterior graphics and some
floor plan and sleeping accommodations. Depending on the model, a Rexair,
Aerbus, RoseAir, Vision, Anthem and American Clipper 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 $75,000 to $159,000 (diesel
models) and fully equipped with all available options from approximately
$91,500 to $175,000. Suggested retail prices for the Vision and American
Clipper models (entry level) with standard equipment range from approximately
$61,500 to $69,000 (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 1995, 1996, and 1997, 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.
<PAGE>
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 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 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 operates one production shift, producing an average of 86
units per month during 1997. Total gross units produced in 1997, was 1,031
units. Unit production increases can be achieved at a relatively low cost on
the existing production shift by increasing the number of production
employees.
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 (9.5% at December 31,
1997) 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 92.8% 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
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.
<PAGE>
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. Dealers do not have the right to
return motorhomes.
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, 1996 and 1997 the Company's contingent liability was
approximately $17,528,000 and $22,130,000 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.
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 three major recreational vehicles shows
(Pomona Show in California, Louisville Show in Kentucky and Tampa Show in
Florida) 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. 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, 1995, 1996 and 1997, the Company's backlog of dealer orders
were $2,650,000, $3,688,000 and $3,864,000 respectively. The Company
believes that backlog is not necessarily a reliable indication of future
sales because dealer orders not only fluctuate but, by industry customs, are
cancelable without penalty and because motorhomes have a relatively short
manufacturing cycle.
<PAGE>
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 $775,000, $959,000 and $1,753,000 for the years ended December
31, 1995, 1996, and 1997 respectively. The increase in warranty cost is
primarily attributed to units produced at 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 of its dealers. Management believes that these
Service Centers 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 twelve 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 most of the 48
states. Additionally, the Company sells to 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 only 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. General
economic conditions and consumer uncertainty or lack of confidence may result
in delayed purchases of recreational vehicles. Rising interest rates may
adversely affect financing and sales, and uncertainty about rates continues.
The sale 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.
<PAGE>
Regulation
The Company is subject to the provisions of the National Traffic and
Motor Vehicle Safety Act and the safety standards for recreational vehicles
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 is subject to the provisions of Transport Canada for
vehicles exported to Canada. The regulations under that legislation is
similar in nature and design to its American counterparts.
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', 'RoseAir','Vision', 'Anthem', and
'American Clipper' 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, 1997, the Company had a total of 322 employees (279 in
California and 43 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.
Item 2. Properties
In December 1995, the Company completed construction and moved into a
87,000 square foot manufacturing facility in Lancaster, California which
serves as both a manufacturing facility and the Company's Executive Offices.
The facility, built at a cost of approximately $2.2 million, enables the
Company to benefit financially by eliminating its previous lease expense.
The 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, completed in the fourth quarter of 1997, provided an additional
19,320 square feet of production space. The Lancaster facility is debt free
with no mortgages on the facility.
<PAGE>
The Company owns a 97,000 square foot facility on 12 acres in Elkhart,
Indiana. The Elkhart facility is debt free with no mortgages on the
property. As of December 30, 1997 the company had decided to cease
production at the Elkhart facility. However, the company will retain its
wholesale motorhome sales, warranty and service operations at the location.
As a result of this decision to restructure its operations, the Company
recorded a charge to operations of $1,542,000 in 1997. See footnote 2 to the
financial statements.
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, 1997, the
Company was indebted to the City of Lancaster Redevelopment Agency an amount
of $824,000 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 $932,000 at December 31, 1997. The Company
leased a portion of the facility to Lancaster RV from December 1997 to
present. Lancaster RV is a 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 3,500 sq. ft. warehouse area. The facility is
currently leased to S & S RV as a retail RV Center.
The Company believes that its facilities are adequate to meet its
foreseeable needs.
Item 3. Legal Proceedings
The class action lawsuit Masterjohn et al vs. Rexhall, et al, Case No.
752188 filed in the Superior Court of Orange County, California has been
settled subject to court approval.
Under the agreement Rexhall would pay $825,000 in cash, and issue one
coupon per vehicle owned by members of the class of $1250 towards purchase of
a new Rexhall vehicle or $200 toward service, parts and labor. Coupons would
be redeemable at Rexhall's two (2) service centers in Indiana and California,
as well as three (3) other dealerships geographically dispersed. Purchasers
of Indiana manufactured vehicles will be added as members of the settlement
class. The total number of vehicles owned by class members is estimated at
approximately 5,000. The Company has accrued a total of $1,590,000 at
December 31, 1997 for costs related to this settlement.
Other than the above referenced Masterjohn Case, 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.
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 1997.
<PAGE>
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 1995 according to NASDAQ:
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
1997 High Low
First Quarter 6 7/8 5 1/2
Second Quarter 6 1/4 4 3/4
Third Quarter 6 5 1/4
Fourth Quarter 5 3/4 4 5/8
Holders
At March 26, 1998, the Company had 67 shareholders of record.
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, 1993 through December 31,
1997. The financial information as of and for each of the five years in the
period ended December 31, 1997 were derived from audited financial statements
of the Company.
<PAGE>
Statement of Operations Data:
(in thousands, except per-share date)
Year Ended December 31,
1993 1994 1995 1996 1997
Net Revenues $30,218 50,090 60,709 64,959 63,012
Cost of Goods Sold 25,723 43,184 51,981 56,167 55,921
Gross Profit 4,495 6,906 8,728 8,792 7,091
Selling, General, and
Administrative Expenses 2,828 3,841 5,281 6,426 7,286
Restructuring Charge --- --- --- --- 1,042
Income (Loss) from
Operations 1,667 3,065 3,447 2,366 (1,237)
Interest Income 121 181 69 29 3
Interest Expense (26) (48) (136) (171) (134)
Legal Settlement --- --- --- --- (1,590)
Other Income(Expense) 26 24 14 (93) 46
Income (Loss) Before
Income Taxes 1,788 3,222 3,394 2,131 (2,912)
Provision for Income
Taxes (Benefit) 580 1,300 1,360 847 (1,077)
Net Income (Loss) $ 1,208 1,922 2,034 1,284 (1,835)
Net Income (Loss)
Per Share - Basic $ .48 .70 .73 .46 (.67)
Net Income (Loss) per
Share - Diluted (1) .46 .67 .71 .45 (.67)
Weighted Average Shares
Outstanding - Basic 2,526,000 2,751,000 2,792,000 2,806,000 2,740,000
Weighted Average Shares
Outstanding-Diluted 2,646,000 2,851,000 2,862,000 2,856,000 2,740,000
Balance Sheet Data:
(in thousands)
December 31,
1993 1994 1995 1996 1997
Working Capital $ 6,901 8,858 9,269 9,519 7,356
Total Assets 12,608 15,991 19,975 23,496 23,178
Long Term Debt
less Current Portion --- --- 852 826 797
Shareholders Equity 7,633 10,376 12,225 13,581 11,480
(1) Retroactively adjusted to give effect to a 5% stock dividend of 131,000
shares in 1997.
<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 revenues represented by certain items on the Company's
Statements of Operations:
Percentage of Net Sales
Year Ended December 31,
1995 1996 1997
Net Revenues 100.0% 100.0% 100.0%
Costs of goods sold 85.6% 86.5% 88.7%
Gross profit 14.4% 13.5% 11.3%
Selling, general, and administrative expenses 8.7% 9.9% 11.6%
Restructuring charge --- --- 1.7%
Income(loss) from operations 5.7% 3.6% (2.0%)
Legal Settlement --- --- (2.5%)
Other Income(expense), net (0.1%) (0.3%) (0.1%)
Income(loss) before income taxes 5.6% 3.3% (4.6%)
Provision for income taxes(benefit) 2.2% 1.3% (1.7%)
Net income(loss) 3.4% 2.0% (2.9%)
Management Discussion and Analysis
Overview
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein. As is
generally the case in the recreational vehicle industry, various factors can
influence sales, these include increases in interest rates, competition,
restrictions on the availability of financing for the purchase of
recreational vehicles as well as significant increases in the cost of
gasoline. The Company's business is also seasonal in that the majority of
sales occur in the second and third quarter.
The Company has operated two manufacturing divisions Lancaster,
California and Elkhart, Indiana. During 1997, the Company's Board of
directors adopted a formal plan of restructuring whereby the Company
implemented a plan to cease production operations at its Elkhart, Indiana
manufacturing plant and potentially sell all or part of the real estate the
facility occupied. This decision was based upon the Company's evaluation of
costs and the product quality of the recreational vehicles being produced in
Elkhart. Concurrent with this decision, the Company recently completed an
expansion of its Lancaster facility to accommodate the expected rise in
production.
Two key transactions adversely impacted the Company's results of
operations during 1997. In addition to the aforementioned restructuring
charge for the production closure of the Elkhart facility, the Company
reached a settlement of an existing class action lawsuit against the Company.
Pursuant to the settlement, the Company is required to pay $825,000, plus
issue coupons to all members of the class for a discount of $200 on future
repairs or $1,250 towards the purchase of a new Rexhall vehicle. The Company
has recorded the impact from these transactions in the accompanying statement
of operations aggregating $1,042,000 for the restructuring and $1,590,000 for
the lawsuit settlement.
Result of Operations
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Net revenues for the year ended December 31, 1997, were $63.0
million, compared to $65.0 million for 1996, a decrease of $2.0 million or
3.0%. The decrease in net revenues is principally due to reduced production
and sales from its Elkhart facility. During 1997, revenues from the Elkhart
facility were $10.7 million, compared to $19.4 million in 1996, a decrease of
$8.7 million or 45%. This decrease was offset by increased net revenues at
its Lancaster facility of $6.8 million to $52.3 million in 1997 from $45.5
million in 1996, an increase of 14.9%. The number of units shipped in 1997
decreased 88 to 1,082 in 1997 from 1,170 in 1996, a decrease of 7.5%. This
decrease was somewhat higher than the overall decrease in sales as a result
of the Company's effort to expand its offering of optional equipment items
and other product improvements.
<PAGE>
Gross profit for the year ended December 31, 1997 decreased to
$7.1 million from $8.8 million for 1996, a decrease of $1.7 million or 19.3%.
The gross margin for 1997 was 11.3% as compared to 13.5% for 1996. The
decrease in gross profit is due principally to increased chassis costs,
production problems encountered in the production of vehicles at the Elkhart
facility leading to the Company's decision to ultimately close production at
the facility, and lastly, increased competition in the recreational vehicle
industry. Also contributing to the reduction in gross profit was the overall
3.0% decrease in revenues.
Selling, general and administrative expenses (SG&A) for the year
ended December 31, 997 were $7.3 million, compared to $6.4 million for 1996,
an increase of $0.9 million or 13.4%. The increase of SG&A is due
principally to increase in sales incentive payments, legal expenses and
warranty expense as compared to 1996. The percentage of SG&A to revenues was
11.6% for 1997 as compared to 9.9% for 1996. The increase is due, in part,
to fixed costs of the Elkhart facility being spread over a smaller population
of sales during 1997 as compared to 1996.
During 1997, the Company's Board of Directors approved a
restructuring of the Company's operations. The restructuring plan provided
for changes in operational and production strategies. In implementing these
plans, the Company decided to cease manufacturing operations at its Elkhart,
Indiana plant. The closure of this facility was done in conjunction with the
recently completed expansion of its Lancaster, California facility to
accommodate the anticipated increased production. The Company believes that
the national market can be adequately served from the California facility and
that any slight increase in freight charges will be more than offset by the
reduced manufacturing costs. As a result of this strategic change, the
Company wrote down or wrote off entirely certain of its property and
equipment and inventories located at the Elkhart facility aggregating
$937,000. In addition, the Company recorded additional charges for severance
costs and other expected costs associated with the facility closure
aggregating $105,000. The total charge of $1,042,000 is recorded as a
Restructuring charge in the accompanying statements of operations.
During 1997, the Company reached a tentative settlement, subject
to court approval, of its class action lawsuit. Under the settlement
agreement, the Company will pay $825,000 in cash, and issue one coupon per
vehicle owned by the members of the class for $1,250 towards the purchase of
a new Rexhall vehicle or $200 towards service, parts and labor. Coupons
would be redeemable at the Company's two service centers and at three
dealerships which are suitably dispersed around the country. The Company has
accrued for the estimated costs of the redemption of these coupons and the
cash payment, aggregating $1,590,000 and has recorded this as Lawsuit
settlement in the accompanying statements of operations.
The net loss before income tax benefit for the year ended
December 31, 1997 was $2.9 million, as compared with net income before tax of
$2.1 million for 1996, principally due the aforementioned non-recurring
charges. Without these non-recurring charges, loss before taxes would have
been $0.3 million for the year ended December 31, 1997 as compared to net
income of $2.1 million for 1996. The decrease in this adjusted difference
is due principally to production inefficiencies in the Elkhart facility
resulting in reduced gross margins, increased legal, warranty and other
administrative costs in the Elkhart facility, and increased dealer rebates
and sales incentive payments.
The Company's effective income tax rate was 37.0% (benefit) for
the year ended December 31, 1997 as compared with 39.7% for 1996. The income
tax benefit in 1997 results from the anticipated refund of prior year income
taxes from the carryback of the 1997 taxable net loss. Basic and diluted net
loss per share was $0.67 for the year ended December 31, 1997, as compared
to basic and diluted income per share of $0.46 and $0.45, respectively, in
1996. Exclusive of the impacts of the aforementioned non-recurring items,
net loss would have been $0.2 million for the year ended December 31, 1997,
as compared to net income of $1.3 million for 1996. Basic and diluted loss
per share excluding the impact of the aforementioned non-recurring items
would have been $0.06 for the year ended December 31, 1997 as compared to
$0.46 and $0.45 respectively, for 1996. The decrease in both of these
relationships is due principally to production inefficiencies in the Elkhart
facility resulting in reduced gross margins, increase legal, warranty and
other administrative costs in the Elkhart facility, and increased dealer
rebates and sales incentive payments.
<PAGE>
Comparison of the Year Ended December 31, 1996 to Year Ended December 31,
1995
Net revenues for the year ended December 31, 1996, were $65.0
million, compared to $60.7 million for 1995, an increase of $4.3 million or
7.0%. The number of units shipped in 1996 increased 27 to 1,170 in 1996 from
1,143 in 1995, an increase of 2.4%. This increase was somewhat lower than
the overall increase in sales as a result of the Company's effort to expand
its offering of optional equipment items and other product improvements.
The average net selling price increased approximately 4.5% during the period.
Gross profit for the year ended December 31, 1996 increased to
$8.8 million from $8.7 million for 1995, an increase of $0.1 million or 0.7%.
The gross profit for 1996 was 13.5% as compared to 14.4% for 1995. The
decrease in gross profit is not significant but was impacted by increased
chassis costs as well as increased competition in the recreational vehicle
industry.
Selling, general and administrative expenses (SG&A) for the year
ended December 31, 996 were $6.4 million, compared to $5.3 million for 1995,
an increase of $1.1 million or 21.7%. The increase in SG&A is due
principally to increases in sales incentive payments, legal expenses and
warranty expense as compared to 1995. During 1996, the Company made an
increased effort to expand market share by emphasizing the use of sales
incentive payments. Although the increase in the Company's overall market
share was not significant, they held their market share during the period of
little or no growth for the recreational vehicle industry. The percentage of
SG&A to revenue was 9.9% for 1996 as compared to 8.7% for 1995. The increase
is due to the aforementioned costs plus a higher level of fixed costs in 1996
for the Lancaster facility, opened in late 1995, being incurred for an entire
year as compared to 1995.
The Company's effective income tax rate was 39.7% for the year
ended December 31, 1996 as compared with 40.1% for 1995. The Company's
effective tax rate was consistent in both 1996 and 1995. Basic and diluted
net income per share was $0.46 and $0.45 respectively, for the year ended
December 31, 1996, as compared to basic and diluted net income per share
of $.073 and $0.71, respectively, in 1995. The decrease in basic and
diluted net income per share was due to certain increased product costs and
increased SG&A costs such as sales incentive payments and higher fixed costs
incurred at the new Lancaster facility, as a result of that facility being
opened for all of 1996. The facility was opened in late 1995.
Liquidity and Capital Resources
The Company has relied primarily on internally generated funds,
trade credit and debt to finance its operations and expansions. As of
December 31, 1997, the Company had working capital of $7,356,000, compared
to $9,519,000 at December 31, 1996. The $2,163,000 decrease in working
capital primarily resulted from a $4,354,000 decrease in inventories and a
$1,938,000 increase in accrued legal and legal settlement, partially offset
by a $2,170,000 increase in accounts receivable and a $1,758,000 increase in
current deferred tax assets. The decrease in inventory and increase in
accounts receivable relates to a particularly strong sales in December 1997,
as compared with the same period in 1996.
As of December 31, 1997, the Company has a $3,500,000 line of
credit with Bank of America which can be used for working capital purposes.
Under this line of credit, $365,000 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. Since the Company
purchased workmen's compensation insurance covering their employees at their
Elkhart plant, a similar letter is not required for this facility. As of
December 31, 1997, the Company was not in compliance with certain of its debt
covenants under the line of credit agreement. The Company received a waiver
from the Bank with respect to their non-compliance through December 31,
1998. At December 31, 1997, no amounts were outstanding under the line of
credit agreement.
During the year ended December 31, 1997, the Company repurchased
stock on the open market aggregating $266,000.
The Company anticipates that it will be able to satisfy its
ongoing cash requirements through 1998, including payments related to the
legal settlement and expansion plans at the California facility, primarily
with cash flows from operations, supplemented, if necessary, by borrowing
under its revolving credit agreement.
As mentioned previously, the Company restructured its operations
and ceased production in its Elkhart, Indiana facility. As a result, the
Company recorded certain charges for write-off of certain property and
equipment and inventory in the Elkhart facility. The Company owns the real
estate for the Elkhart facility. As of December 31, 1997, the Company has
not decided what they will do with the real estate. The Company may continue
to operate a service center on part of the location or may dispose of the
real estate in its entirety. The Company has evaluated the recoverability
of this real estate and has concluded that the appraised value of the real
estate exceeds the related book value and that the cost of the real estate is
recoverable. Accordingly, no impairment write-down has been recorded as of
December 31, 1997.
<PAGE>
Forward Looking Statements
The foregoing discussion and other published documents contain
forward-looking statements relating to the future operations of the Company,
including the adequacy of the Company's cash for its anticipated
requirements, and other matters. These forward-looking statements are based
on a series of projections and assumptions regarding the economy, other
statements which are not historical facts, the Company's operations and the
recreational vehicle industry in general. Theses projections and assumptions
involve certain risks and uncertainties that could cause actual results to
differ materially from those included in the forward-looking statements.
Furthermore, actual results may differ from the projected results as a result
of unforseen developments relating the demand for the Company's services and
competitive pricing in the recreational vehicle market, increased expenses,
the success of planned advertising, changes in personnel or compensation or
business interruption resulting from earthquakes and the like. Investors are
also directed to consider other risks and uncertainties discussed in all
documents filed by the Company with the SEC. The Company expressly disclaims
any obligation to update any forward-looking statements as a result of
developments after the date hereof.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting
Standards No. 129 (SFAS No. 129), Disclosure of Information about Capital
Structure in fiscal 1997. Statement No. 129 requires the disclosure of
information about an entity's capital structure. SFAS No. 129 applies to all
entities. The adoption of this statement was immaterial to the financial
statement.
The Company intends to adopt Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, (SFAS No. 130), in fiscal
1998. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and is expected to be reflected in the Company's first
quarter of fiscal 1998 interim financial statements. Components of
comprehensive income include items such as net income and changes in value of
available-for-sale securities. Adoption of this Standard will require
additional disclosure, but will not have material impact on the Company's
financial position or result of operations.
The Company adopted Statement of Financial Accounting Standards
No. 131, Disclosure about Segments of an Enterprise and Related Information,
(SFAS No. 131), for the preparation of the December 31, 1997 financial
statements. SFAS No. 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. It also
establishes standards for related disclosures about products, services,
geographic areas and major customers. This statement superseded FASB
Statement No. 14, Financial Reporting for Segments of a Business Enterprise,
but retains the requirement to report information about major customers.
SFAS No. 131 requires, among other items, that a public business enterprise
report a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets, information about the revenues derived
from the enterprise's products or services and services provided by operating
segments. (See note 12 in Notes to Financial Statements.)
The Company intends to adopt Statement of Financial Accounting
Standard No. 132, Employers' Disclosures about Pensions and Other Post
Retirement Benefits (SFAS No. 132) in fiscal 1998. SFAS No. 132 supersedes
the disclosure requirements of previously issued statements of Financial
Accounting Standards, and amends the requirements for disclosure of such
plans. As the Company does not currently offer any pension are post
retirement benefits, management anticipates the impact of this statement
to be immaterial.
<PAGE>
Item 8. Financial Statements
Independent Audit's Report
The Board of Directors
Rexhall Industries, Inc.
We have audited the accompanying balance sheet of Rexhall Industries, Inc.
as of December 31, 1997, and the related statements of operations,
shareholder's equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 amount and disclosure in the financial statetments.
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 audit provides 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, 1997, and the result of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwich LLP
Los Angeles, California
March 12, 1998
<page
AUDITOR'S REPORT
REXHALL INDUSTRIES, INC.:
We have audited the accompanying balance sheet of Rexhall Industries, Inc.
as of December 31, 1996 and the related statements of operations,
shareholder's equity, and cash flows for the years ended December 31,
1995 and 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 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, 1996 and the results of its operations and its cash
flows for the year ended December 31, 1995 and 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
April 14, 1997
<PAGE>
REXHALL INDUSTRIES, INC.
BALANCE SHEETS
December 31, 1996 and 1997
ASSETS (Note 4) 1996 1997
CURRENT ASSETS
Cash $ 742,000 811,000
Accounts receivables, less allowance
for doubtful accounts $12,000 in 1996,
and $106,000 in 1997 3,208,000 5,378,000
Inventories 13,793,000 9,439,000
Income tax receivable 271,000 337,000
Deferred income taxes (note 6) 439,000 2,197,000
Other current assets 151,000 59,000
Total Current Assets 18,604,000 18,221,000
Property and equipment at cost (note 3 and 5) 4,885,000 4,957,000
Other Assets 7,000 ---
$23,496,000 23,178,000
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (note 4) $7,591,000 6,111,000
Restructuring reserve (note 2) --- 1,042,000
Warranty allowance 355,000 500,000
Accrued Legal Settlement (note 8) --- 1,590,000
Dealer Incentives 339,000 608,000
Other accrued liabilities 774,000 987,000
Current portion of long-term debt (note 5) 26,000 27,000
Total current liabilities 9,085,000 10,865,000
Deferred income taxes (note 6) 4,000 36,000
Long-Term debt (note 5) 826,000 797,000
Total Liabilities 9,915,000 11,698,000
SHAREHOLDERS' EQUITY
Common stock-no par value,
authorized, 10,000,000 shares
issued and outstanding;
2,630,000 at December 31, 1996 and
2,714,000 at December 31, 1997 6,533,000 6,267,000
Retained earnings 7,048,000 5,213,000
TOTAL SHAREHOLDERS' EQUITY 13,581,000 11,480,000
Commitments and Contingencies (note 7)
$23,496,000 $23,178,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 and 1997
1995 1996 1997
Net Revenues (note 11) $60,709,000 64,959,000 63,012,000
Cost of Sales 51,981,000 56,167,000 55,921,000
Operating Expenses:
Gross Profit 8,728,000 8,792,000 7,091,000
Selling, General and
Administrative Expenses 5,281,000 6,426,000 7,286,000
Restructuring Charges (note 2) --- --- 1,042,000
Income (Loss) from Operations 3,447,000 2,366,000 (1,237,000)
Other Income (Expense):
Interest Income 69,000 29,000 3,000
Interest Expense (136,000) (171,000) (134,000)
Legal Settlement (note 8) --- --- (1,590,000)
Other Income (Expense) 14,000 (93,000) 46,000
Income (Loss) Before Income Taxes 3,394,000 2,131,000 (2,912,000)
Income Tax Provision
(Benefits) (note 6) 1,360,000 847,000 (1,077,000)
Net Income (Loss) $ 2,034,000 1,284,000 (1,835,000)
Basic Net Income (Loss) Per Share $ .73 .45 (.67)
Diluted Net Income (Loss) Per Share $ .71 .45 (.67)
Weighted Average Shares
Outstanding - Basic 2,792,000 2,802,000 2,740,000
Weighted Average Shares
Outstanding - Diluted 2,862,000 2,856,000 2,740,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 and 1997
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS TOTAL
BALANCE, January 1, 1995 2,655,000 $6,646,000 3,730,000 10,376,000
Repurchase and Retirment
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 and retirement
of Stock (6,000) (46,000) --- (46,000)
Options issued to
consultant (note 9) 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
Repurchase of Stock (47,000) (266,000) --- (266,000)
5% Stock Dividend 131,000 --- --- ---
Net Loss (1,835,000) (1,835,000)
Balance December 31, 1997 2,714,000 $6,267,000 5,213,000 11,480,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income(loss) $2,034,000 1,284,000 (1,835,000)
Adjustments to reconcile net income (loss)
to net cash provided by
Operating Activities:
Depreciation and amortization 109,000 348,000 216,000
Restructuring charges - non-cash effect --- --- 937,000
Loss on retirement of property and equipment 21,000 --- ---
Provision for deferred income taxes (41,000) (155,000) (1,726,000)
Options issued to consultant --- 85,000 ---
(Increase) decrease in:
Accounts receivable (1,155,000) 1,855,000 (2,170,000)
Inventories (1,230,000) (5,142,000) 3,556,000
Income tax receivable --- (271,000) (66,000)
Increase(decrease) in:
Accounts payable 959,000 1,844,000 (1,480,000)
Restructuring Reserve --- --- 605,000
Legal settlement --- --- 1,590,000
Warranty allowance (10,000) 44,000 582,000
Dealer incentives --- 271,000 269,000
Other liabilities 315,000 315,000 312,000
Net cash provided by operating activities 1,195,000 207,000 790,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,406,000) (1,426,000) (427,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 980,000 --- ---
Repayments of long-term debt (104,000) (24,000) (28,000)
Proceeds from exercise of stock options --- 33,000 ---
Repurchase and retirement of stock (185,000) (46,000) (266,000)
Net cash provided by (used in)
financing activities 691,000 (37,000) (294,000)
NET (DECREASE) INCREASE IN CASH (520,000) (1,256,000) 69,000
BEGINNING CASH BALANCE 2,518,000 1,998,000 742,000
ENDING CASH BALANCE $1,998,000 742,000 811,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Income taxes paid during the year $1,320,639 $ 918,000 696,000
Interest paid during the year 131,000 273,000 259,000
See accompanying 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.
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.
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, determined using
the first-in, first-out basis, or market. Inventories consist of the
following at December 31, 1996 and 1997:
1996 1997
Raw materials $6,608,000 4,659,000
Work-in-Progress 2,753,000 2,124,000
Finished Goods 4,432,000 2,656,000
Total $13,793,000 9,439,000
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.
Revenue Recognition - The Company derives revenue primarily from the sale of
motorhomes to dealers across the United States. Revenue is recognized when
title of the motorhome transfers to the dealer. This generally occurs upon
shipment. Revenues are also generated from the service of motorhomes and
from shipment or installation of parts and accessories.
Income Taxes - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
<PAGE>
Income (Loss) per Share - Basic net income (loss) per share is based upon the
weighted average number of the actual shares outstanding during the period.
Options to purchase common stock are included in the calculation of income
(loss) per share provided their impact is not dilutive.
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
relating to the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Accounting for Stock Options - In October, 1995, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensations"
("SFAS No. 123"), was issued. This statement encourages, but does not
require, a fair value based method of accounting for employee stock
options and is effective for fiscal years beginning after December 15, 1995.
The Company will continue to measure compensation costs under APB Opinion
No. 25, Accounting for Stock Issued to Employees and complied with the pro
forma disclosure requirements of SFAS No. 123 in its annual financial
statements.
Recent Accounting Pronouncements - The Company adopted State of Financial
Accounting Standard No. 129 (SFAS No. 129), Disclosure of Information about
Capital Structure in fiscal 1997. Statements No. 129 require the disclosure
of information about an entity's capital structure. SFAS No. 129 applies to
all entities. Adoption of this statement was immaterial to the financial
statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components
(revenue, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires all items that are required to
be recognized under accounting standards as components of comprehensive
income to be reported in a financial statement that is displayed with the
same prominence as other financial statements. SFAS No. 130 does not
requires specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for
the period covered by that financial statement. SFAS No. 130 requires an
enterprise to (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Management has not determined whether the adoption of SFAS No. 130 will have
a material impact on the Company's consolidated financial position or
results of operations.
The Company adopted Statement of Financial Accounting Standard No. 131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS
No. 131), for the preparation of the December 31, 1997 financial statements.
SFAS No. 131 changes the way companies report segment information and
requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. It also
establishes standards for related disclosures about products, services,
geographic areas and major customers. This statement superseded FASB
Statement No. 14, Financial Reporting for Segments of a Business
Enterprise, but retains the requirement to report information about major
customers. SFAS No. 131 requires, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets, information about the revenues
derived from the enterprise's products or services and services provided by
operating segments.
<PAGE>
The Company intends to adopt Statement of Financial Accounting Standard No.
132, Employers' Disclosures about Pensions and Other Post Retirement Benefits
(SFAS No. 132) in fiscal 1998. SFAS No. 132 supersedes the disclosure
requirements of previously issued statements of Financial Accounting
Standards, and amends the requirements for disclosure of such plans. As the
Company does not currently offer any pension are post retirement benefits,
management anticipates the impact of this statement to be immaterial.
Reclassifications - Certain reclassifications have been made to the 1995 and
1996 financial statements to conform to the 1997 presentation.
Year 2000 - The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
The Company has completed a Year 2000 impact analysis and expects to convert
its systems in the Year 2000 compliant by the end of 1998. The Company is
expensing all costs associated with these system changes as costs are
incurred. Management believes that the cost of this conversion will be less
then $200,000. This estimate is based on the cost of implementing recently
purchased general ledger and inventory requirements software, which has been
certified by the vendor to be year 2000 compliant. The Company has also
evaluated its key supplier relationships (i.e. Ford, General Motors) and has
determined that such suppliers are year 2000 ready. The Company's ancillary
operating systems and programs are year 2000 compliant. Management has
therefore determined that the year 2000 issue will not have a material
impact on the Company's results of operations or liquidity.
2. RESTRUCTURING
During 1997, the Company's Board of Directors approved a restructuring of the
Company's operations. The restructuring plan provided for changes in
operational, and production strategies. In implementing these plans, the
Company decided to cease manufacturing operations at it's Elkhart, Indiana
plant. The Company recorded charges aggregating $1,042,000 as a result of
this restructuring plan in the fourth quarter of 1997. The ceasing of
manufacturing operations at the Elkhart facility was made in conjunction
with the recently completed expansion of the California facility to
accommodate the projected increase in production at the California plant.
As a result of this repositioning, the Company determined that certain
of it's fixed assets and inventories located at the Elkhart plant should
be written down, resulting in a charge of approximately $937,000.
Additionally, the Company recorded severance, rebates and other related costs
relating to the closure of the Elkhart plant for approximately $105,000,
which is included as a restructuring charge in the accompanying statements of
operations.
The Company owns the real estate for the Elkhart facility. As of December
31, 1997, the Company has not determined the ultimate resolution of the real
estate. The Company may continue to operate a service center on part of the
location or may dispose of the real estate in its entirety. The Company has
evaluated the recoverability of this real estate and has concluded that the
appraised value of the real estate exceeds the related book value and that
the cost of the real estate is recoverable. Accordingly, no impairment
write-down has been recorded as of December 31, 1997.
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996
and 1997:
Useful Lives
(In years) 1996 1997
Building and Land 31.5 $4,240,000 4,543,000
Furniture, fixtures and equipment 2,7 1,226,000 1,227,000
Leasehold improvements 5 89,000 ---
Autos and trucks 5,7 152,000 155,000
5,707,000 5,925,000
Less accumulated depreciation and amortization (822,000) (968,000)
$4,885,000 4,957,000
4. LINES OF CREDIT
The Company has available a $3,500,000 revolving line of credit with a bank
expiring on June 1, 1998. The reference rate is the rate of interest
publicly announced from time to time by the bank in San Francisco. At
December 31, 1997, no amounts were outstanding under this line. All
borrowings are collateralized by the Company's assets. At December 31, 1997,
the Company was not in compliance with certain covenants under the line of
credit, principally due to the losses incurred in 1997. The Company has
obtained a waiver of this non-compliance from its bank through 1998.
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% (9.5% at December 31, 1997). All borrowings
are secured by the Company's assets. The outstanding balances included in
accounts payable at December 31, 1996 and 1997 were $889,000 and $453,000
respectively.
The Company has a line of credit with another chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $2,600,000 limit. Borrowings under the line
bear interest at an annual rate of prime plus 1% (9.5% at December 31, 1997).
All borrowings are secured by the Company's assets. The outstanding balances
included in accounts payable at December 31, 1996 and 1997 were $3,041,000
and $2,162,000 respectively.
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consists of the following:
Promissory note payable to the City of Lancaster Redevelopment Agency,
240 monthly payments of $6,285 including principal
and interest at 5.93% per annum, note matures on October 2015. 1996 1997
The note is collateralized by land and building with a net
book value of approximately $932,000 at December 31, 1997. 852,000 824,000
Less: Current Portion 26,000 27,000
Long-Term debt 826,000 797,000
<PAGE>
Future annual minimum principal payments due on long-term debt (including
current portion) as of 12/31/97 are as follows:
Year Ending December 31,
1998 $ 27,000
1999 29,000
2000 31,000
2001 32,000
2002 34,000
Thereafter 673,000
$826,000
6. INCOME TAXES
The components of income tax expense (benefit) are as follows:
Years Ended
December 31,
1995 1996 1997
Current:
Federal $ 1,090,000 780,000 526,000
State 311,000 222,000 123,000
1,401,000 1,002,000 649,000
Deferred:
Federal (34,000) (124,000) (1,347,000)
State (7,000) (31,000) (379,000)
41,000 (155,000) (1,726,000)
$1,360,000 847,000 (1,077,000)
The components of deferred tax assets (liabilities) at December 31, 1996
and 1997 are as follows:
1996 1997
FEDERAL STATE FEDERAL STATE
Current:
Allowance for bad debts $ 22,000 6,000 33,000 9,000
Inventory reserves 34,000 16,000 124,000 34,000
Warranty accrual 121,000 32,000 292,000 81,000
Dealer incentives (124,000) (44,000) 179,000 49,000
Uniform capitalization 68,000 22,000 120,000 33,000
Reserve for self insurance 124,000 32,000 135,000 37,000
Legal reserves --- --- 603,000 167,000
Accrued restructuring liability --- --- 188,000 52,000
Other accrued liabilities 53,000 14,000 15,000 4,000
State tax 63,000 --- 42,000 ---
361,000 78,000 1,731,000 466,000
Non Current:
Depreciation (3,000) (1,000) (29,000) (7,000)
Net deferred tax assets $358,000 77,000 1,702,000 459,000
<PAGE>
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income (loss) taxes
(benefit) due to the following:
Years Ended
December 31,
1995 1996 1997
Income (loss) before income tax $3,394,000 2,131,000 (2,912,000)
Statutory federal tax rate (benefit) 35% 35% 34%
Expected tax expense (benefit) 1,188,000 746,000 (990,000)
State taxes net of federal effect 198,000 148,000 (169,000)
Permanent differences 14,000 20,000 6,000
IRS audit resolution, primarily
State Tax deduction --- --- 101,000
Other adjustments (40,000) (67,000) (25,000)
Provision for income taxes (benefit) $1,360,000 847,000 (1,077,000)
7. COMMITMENTS AND CONTINGENCIES
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 1996 and 1997 the Company
repurchased approximately $1,680,000 and $3,145,000 respectively, of
motorhomes under these agreements. At December 31, 1996 and 1997,
approximately $17,528,000 and $22,130,000 respectively, of dealer inventory
is covered by repurchase agreements. Dealers do not have the contractual
right to return motorhomes.
Litigation - The Company is a party to various claims, complaints and other
legal actions that have arisen in the ordinary course of business from time
to time. The Company believes that the outcome of such pending legal
proceedings, in the aggregate will not have a material adverse effect on the
Company's financial condition or result of operations, except as described in
footnote 8, legal settlement.
8. LEGAL SETTLEMENT
Legal Settlement - The class action lawsuit Masterjohn et al vs. Rexhall, et
al, Case No. 752188 filed in the Superior Court of Orange County, California
has been settled subject to court approval. Under the agreement Rexhall
would pay $825,000 in cash, and issue one coupon per vehicle owned by members
of the class of $1250 towards purchase of a new Rexhall vehicle or $200
toward service, parts and labor. Coupons would be redeemable at Rexhall's
two service centers in Indiana and California, as well as three other
dealerships geographically dispersed. The total number of vehicles owned
by class members is estimated at approximately 5,000. The Company has
recorded a charge of $1,590,000 in 1997 relating to this settlement.
<PAGE>
9. STOCK INCENTIVE PLAN
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
three years. The maximum term of each option may not exceed 10 years. The
following table summarizes the change in outstanding employee incentive stock
options:
Number Range of Weighted
of Options Price Average
Options per Share Exercise Price
Outstanding options at January 1, 1995 176,000 $3.35 $ 3.21
Options granted 21,000 3.25 3.25
Options canceled (33,000) 3.25 - 4.88 3.16
Outstanding options at December 31, 1995 164,000
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
Options exercised --- ---
Options canceled --- ---
Outstanding options at December 31, 1997 134,000 2.75 - 3.25 3.14
The following table summarizes information about stock options outstanding at
December 31, 1997:
Number Weighted
Exercise Outstanding at Average Remaining Weighted Average
Price December 31, 1997 Contractual Life Exercise Price
$2.75 30,000 .33 $2.75
$3.25 104,000 .51 3.25
134,000 .48 3.14
Shares Exercisable Weighted Average
at December 31, 1997 Exercise Price
30,000 $ 2.75
101,000 3.25
131,000 3.14
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 and 1997. 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 1995,
1996 or 1997. 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 (loss) and earnings per share for the years ended
December 31, 1995, 1996 and 1997 would have been reduced to the pro forma
amounts indicated below:
<PAGE>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
Net income(loss):
As reported $2,034,000 1,284,000 (1,835,000)
Pro forma 2,027,000 1,284,000 (1,835,000)
Basic income (loss) per common share:
As reported $0.73 0.46 (0.67)
Pro forma $0.73 0.46 (0.67)
No options were granted under the stock plan during 1996 or 1997. The fair
value of options granted under the stock option plan during 1995 was
determined using the Black-Scholes option pricing model utilizing the
following weighted-average assumptions:
Year Ended
December 31,
1995
Dividend yield 0%
Anticipated volatility 49.47%
Risk-free interest rate 6.58%
Expected lives 4 years
During 1996, the Company granted 38,000 non-statutory 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 compensation expense in 1996 in the
accompanying statement of operations.
10. COMMON STOCK
In April 1997, the Company announced a 5% stock dividend of 131,000 shares
issued on May 26, 1997 to shareholders of record as of May 12, 1997.
11. SIGNIFICANT CUSTOMERS
The Company had one major customer, RV World Productions aka Rainbow RV, who
accounted for 11% of the Company's sales during 1997. The Company had one
major customer, Village RV, who accounted for 14.9% and 19.5% of the
Company's sales during 1995 and 1996, respectively.
12. BUSINESS SEGMENT REPORTING
Under SFAS No. 131, the Company has defined it's two operating segments
geographically; its two distinct production facilities in Lancaster,
California and Elkhart, Indiana. The Company measures profitability and
results of operations of each segment separately. A summary of the Company's
revenues and income (loss) from operating by segment is as follows:
(in thousands)
<PAGE>
Year ended December 31,
1995 1996 1997
Revenues:
California $ 45,476 45,527 52,320
Indiana 15,233 19,432 10,692
$ 60,709 64,959 63,012
Income (loss) from Operations: (1)
California $ 3,487 2,558 3,328
Indiana (40 (192) (4,565)
Total $ 3,447 2,366 (1,237)
(1) Income (loss) from operations consists of total revenues less operating
expenses and does not include other income.
A summary of the Company's identifiable net assets by segment represent those
net assets used in the Company's operations:
December 31,
1996 1997
Identifiable net assets: (2)
California $ 6,651 6,883
Indiana 6,176 2,053
Total $ 12,827 8,936
(2) Identifiable assets consist of accounts receivable, inventory, fixed
assets net of accounts payable and accrued liabilities. Other information is
not tracked separately by management for evaluation and review purposes.
13. INCOME (LOSS) PER SHARE
The following is a reconciliation of the basic and diluted income (loss) per
share computation for the year 1995, 1996 and 1997:
Year ended December 31,
1995 1996 1997
Net income (loss) used for basic and
diluted income per share $2,034 1,284 (1,835)
Share of Common Stock and
Common Stock equivalents:
Weighted average shares used
in basic computation 2,792 2,806 2,740
Weighted stock options 70 50 ---
Shares used in diluted computation 2,862 2,856 2,740
Income per share:
Basic $0.76 $0.48 $(0.67)
Diluted $0.71 $0.45 $(0.67)
During 1997, the Company issued a 5% stock dividend, resulting in the
issuance of 131,000 share of common stock. The impact of this stock
dividend has been retroactively recorded in the per share calculation
for all periods presented.
<PAGE>
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
March 31, 1998 are as follows:
Name Age Positions Held Director Term
William J. Rex(1)(2) 47 Chairman of the Board of 6/01/96 thru
Directors, CEO and President 5/31/98
Donald C. Hannay, Sr. 70 Vice President of Sales 6/01/96 thru
and a Director 5/31/98
Al J. Theis(1)(2) 80 Director 6/01/96 thru
5/31/98
Robert A Lopez(1)(2) 58 Director 6/01/96 thru
5/31/98
Marco A. Martinez(3) 39 Vice President, General Manager 11/15/96 thru
and Director resigned 12/8/97
Cheryl L. Rex 45 Corporate Secretary
Anthony J. Partipilo 50 Chief Financial Officer
(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.
<PAGE>
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 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. Mr Martinez resigned as Director, General Manager and Vice
President effective December 8, 1997.
Mrs. Cheryl L. Rex is the Corporate Secretary and has been with Rexhall
since 1986 serving in many different capacities. For several years Mrs. Rex
served as Office Manager and was responsible for payroll. She has been
involved from the beginning with the interior as well as sharing in the
production of the Company's product brochures.
Mr. Anthony J. Partipilo began his employment with Rexhall in May 1997
as Chief Financial Officer. Prior to his employment with the Company, Mr.
Partipilo served in various consulting and executive capacities with a number
of companies. Mr. Partipilo is also a member of the State Bar of California.
<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 $100,000 for the year ended December 31, 1997:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other Annual
Principal Position Year Salary ($) Bonus($) Compensation (2)
William J. Rex 97 250,000 168,243 ------
President & CEO 96 250,000 199,890 ______
95 250,000 324,000 ------
Donald C. Hannay, Sr. 97 52,800 170,391 ------
V.P. of Sales & Marketing 96 52,800 171,550 ______
95 53,800 168,000 ------
Juan Arias(3) 97 ------- ------- ------
V.P. of Production 96 73,600 99,000 ______
95 85,000 114,000 ------
Marco A. Martinez 97 101,000 ------- ------
(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 1997 did not exceed, as to
any named officer, the lesser of $50,000 or 10% of the total 1997 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 $350 per Board Meeting
and there are four Board Meetings per year.
<PAGE>
The Company also has an incentive program under which it pays
supervisory employees involved in the sales and production a cash bonus based
on specific performance criteria. Committee members: William J. Rex, Rober
A. Lopez and Al J. Theis.
Stock Option Plan
In May 1989, the Company adopted the 1989 Incentive and Nonstatutory
Stock Option pursuant to Section 422A of the Internal Revenue Code of 1986,
as amended, to (i) key employees, and (ii) to directors and consultants to
the Company designated by the Board as eligible under the Option Plan. Under
the Option Plan, options for up to 225,000 shares may be granted.
The Option Plan is administered by the Board of Directors or by a
committee appointed by the Board, which determines the terms of options
granted, including the exercise price, the number of shares subject to
the options, and the terms and conditions of exercise. No option granted
under the Option Plan is transferable by the optionee other than by will or
the laws of descent and distribution, and each option is exercisable during
the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the Option Plan
must be at least equal to the fair market value of such shares on the date of
grant, and the maximum term of each option may not exceed 10 years. With
respect to any participant who owns stock possessing more then 10% of the
voting rights of the Company's outstanding capital stock, the exercise price
of any stock option must be not less than 110% of the fair market value on
the date of grant and the maximum term of such option may not exceed five
years. Stock appreciation rights are not authorized under the Option Plan.
Options/SAR Grants
Number of % of Total
Securities Option/SARs
Underlying Grants to
Options/SARs Employees in Exercise or Bas Expiration
Name Year Granted (#) Fiscal Year Price ($/SH) Date
William J. Rex 1997 -0- -0- -0-
1996 -0- -0- -0-
1995 -0- -0- -0-
William M. Hill(1) 1997 -0- -0- -0-
1996 -0- -0- -0-
1995 10,000 48% $3.25 2/2000
Donald C. Hannay 1997 -0- -0- -0-
1996 -0- -0- -0-
1995 11,000 52% $3.25- 2/2000
(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 1997 -0- -0- -0-
1996 -0- -0- -0-
1995 -0- -0- -0-
William M. Hill(1) 1997 -0- -0- -0-
1996 10,000 100% $3.25
1995 -0- -0- -0-
Donald C. Hannay 1997 -0- -0- -0-
1996 -0- -0- -0-
1995 -0- -0- -0-
Juan Arias 1997 -0- -0- -0-
1996 -0- -0- -0-
1995 11,000 39% $3.25
(1) Mr. Hill resigned from the Company in February 1995.
Aggregated Option/SAR Exercises in last FY
and Fy-End Options/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable(1)
William J. Rex -0- -0- 112,000/-0- $253,000/0
Donald C. Hannay -0- -0- 22,000/-0- $ 46,750/0
Juan Arias -0- -0- -0- -0-
(1) 12/31/97 close price $5-3/8 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, 1998
William J. Rex (1)..... 1,360,485 50.13%
c/o Rexhall Industries
46147 7th Street West
Lancaster, California 93534
All Directors and
Officers as a Group (5 persons) 1,372,612 50.57%
(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 Statements
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.
(3.0) 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
12/31/97.
(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: March 31, 1998
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: March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 811,000
<SECURITIES> 0
<RECEIVABLES> 5,484,000
<ALLOWANCES> 106,000
<INVENTORY> 9,439,000
<CURRENT-ASSETS> 18,221,000
<PP&E> 5,925,000
<DEPRECIATION> 968,000
<TOTAL-ASSETS> 23,178,000
<CURRENT-LIABILITIES> 10,865,000
<BONDS> 0
0
0
<COMMON> 6,267,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,178,000
<SALES> 63,012,000
<TOTAL-REVENUES> 63,012,000
<CGS> 55,921,000
<TOTAL-COSTS> 64,249,000
<OTHER-EXPENSES> 46,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> (2,912,000)
<INCOME-TAX> (1,077,000)
<INCOME-CONTINUING> (1,835,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,835,000)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> (.67)
</TABLE>
