ABOUT REXHALL
Rexhall Industries is a manufacturer of Class "A" motorhomes entering our
12th year of operation. Manufacturing began in 1986 in a renovated, 18,000
square foot recreational vehicle plant in Pacoima, California. As orders
increased, the Company quickly outgrew its modest facilities and moved to an
80,000 square foot facility in Saugus, California. In June 1989 management
decided to take the Company public, with an initial offering of 1.15 million
shares of common stock trading on the NASDAQ Stock exchange. In 1991
Business Week Magazine named Rexhall Industries the "Number One Best Small
Growth Company in America," out of 7,700 publicly traded companies. These
early milestones helped reinforce the philosophy of the Company and it wasn't
long before Rexhall was one of the top manufacturers of Class "A" motorhomes
nationally. In 1993 the Company bought and opened a second production plant
in Elkhart, Indiana. In 1994 Rexhall started building its new Corporate
headquarters in Lancaster, California. As part of the City of Lancaster's
redevelopment project, Rexhall was able to acquire 10 acres of land on which
to build a new manufacturing facility and Corporate Headquarters, now
encompassing 107,000 square feet of office and production space. Upon
completion of the latest expansion of the California plant at the end of
1997, the decision was made to cease production at the Indiana facility and
to concentrate all production at the west coast facility. This
centralization of production in the modern, state of the art California
facility should well position Rexhall to continue on as one of the industry's
top manufacturers. In 1997, workers produced and shipped 1043 Class "A"
motorhomes Rexhall's motorhomes are sold through 100 dealers across the
United States and Canada.
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FINANCIAL HIGHLIGHTS
Operating Results for *1995 *1996 1997
year ending December 31st
Sales $60,709,000 $64,959,000 $63,012,000
Income Before Taxes 3,394,000 2,131,000 (2,912,000)
Net Income 2,034,000 1,284,000 (1,835,000)
Working Capital 9,269,000 9,519,000 7,356,000
Total Assets 19,975,000 23,496,000 23,178,000
Shareholders' Equity 12,225,000 13,581,000 11,480,000
Sales per Share $21 $23 $23
Earnings per Share $.71 $.45 $(.67)
Shareholders' Equity per Share $4.27 $4.76 $4.19
Weighted Average Shares 2,862,000 2,856,000 2,740,000
Outstanding (Diluted)
Current Ratio 2.34 to 1 2.1 to 1 1.68 to 1
*1995 and 1996 calculations have been updated to reflect a 5% dividend
issued to all stockholders on 05-26-97.
<PAGE>
Dear Fellow Shareholders:
I would like to begin by thanking each and every one of you and for allowing
me to present a brief summation of our fiscal year. The year 1997 was a year
of many challenges and difficult decisions.
It wasn't a secret that the Company's expansion and growth was being hedged
by two serious impediments. The first was the Masterjohn class action
lawsuit, and the second was the expenses, costs, and production issues at
the Indiana facility.
Although Rexhall sincerely felt that it had not been guilty of any wrong
doing, the continued existence of the Masterjohn class action lawsuit had
become a governor upon the Company's expansion and growth. Recognizing
that shareholder value and customer confidence could never be maximized
while the lawsuit remained, the Company intensified its efforts to resolve
the matter. Through hard work and diligent effort, the Company was
ultimately able to settle the suit on terms that management believes will
be favorable to the future performance of the Company.
Recognizing that the Indiana facility had been a Company commitment for
almost four years, management made every effort to bring production and
costs into line with the Company's standards. While some improvement was
made at the Indiana facility, the problems were never fully resolved to the
full satisfaction of management.
While attempting to improve the Indiana facility, management in conjunction
with that effort, expanded the California facility by almost 20,000 sq. ft.
This expansion was done for several reasons, one of which was to give the
Company an alternative, should the Indiana effort prove not as successful
as hoped.
Once the California expansion was completed the Company's response was
immediate. Management ceased production at the Indiana facility and focused
all future production out of the profitable California facility. While
these tasks were undertaken, the Company took this opportunity to continue
the growth of the East cost dealers by expanding its sales, along with
service and warranty at the Indiana facility location.
With all that has now been accomplished, we now have the opportunity to
continue our focus on producing the best product on the market. At the same
time, the Company will continue its growth plans for Eastern sales and
provide service and warranty support for both Eastern and Western dealer
networks. After meeting its problems "head on," Rexhall is now poised to
move forward to a more profitable future.
Sincerely,
William J. Rex
President & Chief Executive Officer
<PAGE>
OUR APPROACH TO BUSINESS
"Leadership through innovation" has long been the motto at Rexhall. Unlike
other manufactures that follow the trends, Rexhall has sought to set the
trends for the RV industry to follow. Rexhall pioneered the way with
concepts such as the 102" widebody, with tapered front caps to 96", the
100% welded uni-body steel cage, construction custom slide-out with storage
compartments built in, and now custom double slide outs.
We have been able to accomplish these breakthroughs because, unlike most of
our competitors, we evolved as a company from the assembly line and
manufacturing floor. We are a manufacturing company built primarily by
workers. Even our President and CEO, learned the business on the assembly
line over 25 years ago. Our "honest work roots" give us a unique
perspective and added confidence when competing on construction methods and
quality.
In the early days of Rexhall and continuing to the present, key positions
are filled by seasoned employees who possessed strong manufacturing skills.
Together we have earned a reputation for building quality motorhomes on
time, on budget, and at fair prices.
Our approach has always been straight forward: hire quality workers, labor
together as a team, maintain a disciplined production schedule, and follow
through with hands-on supervision and inspection at all stages of
manufacturing.
We have continued our development of product engineering through the use
of CAD systems as well as continued re-evaluation and improvement of our
material control, production processes and market research and
development. In other words, all phases of operation are continually
being re-evaluated for possible enhancements to better facilitate our goal
of building motorhomes on time, on budget, and with consistent quality.
<PAGE>
OUR MOTORHOMES
The Company'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.
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 lines offers many models and floor plans with
multiple decors. These various models come with the following chassis
and engine types:
- 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 a 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, although some models may
vary in standard equipment.
<PAGE>
Suggested retail prices of RexAir, Aerbus, RoseAir or Anthem 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).
OUR COMPANY'S FACILITIES
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.
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.
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 44,000 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 of Rexhall product.
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 for Rexhall product.
<PAGE>
MANAGEMENT'S DISCUSSION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth for each of the three years indicated the
percentage of 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%)
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 in 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 production 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.
<PAGE>
Results 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.
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, 1997 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 increase in 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 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.
<PAGE>
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 to 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.
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, 1996 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.
<PAGE>
The Company's effective income tax rate was 39.7% for the year ended
December31, 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
worker'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 that 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 followed a policy of
repurchasing stock on the open market.
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>
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, 199 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
Retirement 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 --- 71,000 269,000
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>
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities - Rexhall Industries, Inc. (the "Company") designs,
manufactures and sells Class Amotorhomes. 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
<PAGE>
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.
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 standard 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 require 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.
<PAGE>
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.
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 or 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 to be 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
underthe 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 24,000
Less: Current Portion 26,000 27,000
Long-Term debt 826,000 797,000
Future annual minimum principal payments due on long-term debt (including
current portion) as of 12/31/97 are as follows:
<PAGE>
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 $ 1,090,00 780,00 526,000
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)
,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
ccrued restructuring liability --- --- 188,000 52,000
ther 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
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:
<PAGE>
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 2000 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 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.
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:
<PAGE>
Number of Range of Weighted Average
Options Options Exercise Price
Prices per
Share
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:
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)
<PAGE>
No options were granted to employee or directors 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)
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.
<PAGE>
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 retroactively recorded in the per share calculation for all periods
presented.
<PAGE>
MARKET INFORMATION
Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock has traded in the over-the-counter market since
June 22, 1989 and sales and other information are reported in the NASDAQ
National Market System. The Company's NASDAQ symbol is "REXL". The
following table sets forth the range of high and low closing sale prices of a
share of the Company's Common Stock in the over-the-counter market for each
quarter since the first quarter of 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
<PAGE>
Independent Auditor'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,
shareholders' 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 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 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.
/s/ KPMG Peat Marwich LLP
Los Angeles, California
March 12, 1998
<PAGE>
CORPORATE INFORMATION
DIRECTORS
William J. Rex Chairman, President and
Chief Executive Officer
Don Hannay, Sr.
Vice President, Sales
Director
Marco A. Martinez
Vice President and General Manager
(Elkhart Indiana Plant)
Director (resigned December 8, 1997)
Al J. Theis Consultant
Director
Robert A. Lopez
President, Nickerson Lumber Plywood
Director
OFFICERS
William J. Rex
President
Donald Hannay, Sr.
Vice President, Sales
Marco A. Martinez
V. P. and General Manager
(Elkhart Indiana Plant)
(resigned December 8, 1997)
Anthony J. Partipilo
Chief Financial Officer
Cheryl L. Rex
Corporate Secretary
<PAGE>
REGISTRAR AND TRANSFER AGENT
U.S. Stock Transfer Corp
Glendale, CA
LEGAL COUNSEL
Freshman, Marantz, Orlanski,
Cooper & Klein
Beverly Hills, CA
Baker & Daniel
Elkhart, IN
AUDITORS
KPMG Peat Marwick LLP
Woodland Hills, CA
FORM 10K
A copy of the Company's Form 10K, filed
with Security and Exchange Commission is
available without charge upon writing to:
Shareholders Relations
Rexhall Industries, Inc
46147 7th Street West
Lancaster, CA 93534
EXECUTIVE OFFICES
Rexhall Industries, Inc.
46147 7th Street West
Lancaster, CA 93534
(805) 726-0565
Website: http:/www.rexhall.com
E-Mail: [email protected]
