SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended June 30, 1998 Commission file number: 0-17824
REXHALL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
California 95-4135907
(State of Incorporation) (IRS Employer Identification No.)
46147 7th Street West, Lancaster California 93534
(Address of principal executive offices) (Zip Code)
(805) 726-0565
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No _____.
Applicable only to Corporate Issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,021,863 as of 7/31/1998.
<PAGE>
REXHALL INDUSTRIES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Financial Statements:
Condensed Balance Sheets at June 30, 1998 3
and December 31, 1997
Condensed Statements of Operations for the
three and six months ended June 30,1998
and June 30, 1997 4, 5
Condensed Statements of Cash Flows
for the six months ended June 30, 1998
and June 30, 1997 6
Notes to Condensed Financial Statements
as of June 30, 1998 7,8,9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10,11,12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2.
Exhibits and reports on Form 8-K - NONE
Signatures 14
<PAGE>
(Audited) (Unaudited)
December 31 June 30
PART I - FINANCIAL INFORMATION 1997 1998
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
Assets:
Current Assets
Cash and Short Term Investments $ 811,000 $ 4,001,000
Accounts Receivable 5,378,000 5,732,000
Inventories 9,439,000 7,851,000
Other Current Assets 59,000 147,000
Income Tax Receivable 337,000 ---
Deferred Income Taxes 2,197,000 2,197,000
Total Current Assets 18,221,000 19,928,000
Property and Equipment - Net 4,957,000 4,946,000
Other Assets --- 385,000
TOTAL ASSETS $23,178,000 $25,259,000
Liabilities and Shareholders' Equity:
Current Liabilities
Accounts Payable 6,111,000 5,781,000
Restructuring Reserve 605,000 486,000
Warranty Allowance 937,000 968,000
Accrued Legal Settlement 1,590,000 1,384,000
Dealer Incentives 608,000 465,000
Other Accrued Liabilities 987,000 1,112,000
Income Taxes Payable --- 658,000
Current Portion of Long Term Debt 27,000 28,000
Total Current Liabilities 10,865,000 10,882,000
Deferred Income Tax Liabilities 36,000 36,000
Long Term Debt 797,000 783,000
Total Liabilities 11,698,000 11,701,000
Shareholders' Equity:
Preferred Stock - no par value;
Authorized 1,000,000 shares; no
shares outstanding at June 30,
1998 and December 31, 1997
Common Stock - no par value;
Authorized 10,000,000 shares;
Outstanding 3,022,000 shares
at June 30, 1998 and 2,715,000
shares at December 31, 1997 $ 6,267,000 $ 6,846,000
Retained Earnings 5,213,000 6,712,000
Total Shareholders' Equity 11,480,000 13,558,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $23,178,000 $25,259,000
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30, 1997 June 30, 1998
Sales $16,215,000 $18,380,000
Cost of Sales 13,583,000 15,456,000
Gross Profit 2,632,000 2,924,000
Selling, General, Administrative
Expenses and Other Expenses 1,485,000 1,333,000
Income Before Taxes 1,147,000 1,591,000
Income Taxes 464,000 635,000
Net Income $ 683,000 $ 956,000
Basic Net Income Per Common Share $ .24 $ .33
Diluted Net Income Per Common and
Equivalent Share $ .23* $ .32
Weighted Average Number of Common
Shares Outstanding - Basic $2,894,000 $2,918,000
Weighted Average Number of Common
and Equivalent Shares Outstanding-Diluted 2,963,000 2,949,000
*Originally reported as $.24 per share based on 2,821,000 shares outstanding.
However, considering the 5% stock dividend of 142,000 shares on June 19,
1998, earnings were adjusted to $.23 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30, 1997 June 30, 1998
Sales $33,880,000 $32,550,000
Cost of Sales 28,848,000 27,463,000
Gross Profit 5,032,000 5,087,000
Selling, General, Administrative
Expenses and Other Expenses 2,981,000 2,591,000
Income Before Taxes 2,051,000 2,496,000
Income Taxes 830,000 997,000
Net Income $ 1,221,000 $ 1,499,000
Basic Net Income Per Common Share $ .42 $ .51
Diluted Net Income per Common and
Equivalent Share $ .41* $ .51
Weighted Average Number of Common
Shares Outstanding -Basic 2,894,000 2,918,000
Weighted Average Number of Common and Equivalent
Shares Outstanding - Diluted 2,963,000 2,949,000
*Originally reported as $.43 per share based on 2,821,000 shares outstanding.
However, considering the 5% stock dividend of 142,000 shares on June 19,
1998, earnings were adjusted to $.41 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,221,000 $1,499,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 132,000 167,000
Increase in accounts receivable (2,344,000) (354,000)
Decrease in inventories 815,000 1,588,000
Decrease (increase) in other current assets 58,000 (88,000)
Decrease in accounts payable (30,000) (330,000)
Increase in other current liabilities 16,000 371,000
Increase in non-current accrued liabilities 155,000 ---
Decrease in income tax receivable 271,000 312,000
Increase in deferred income tax liabilities 21,000 ---
Net cash provided by operating activities 315,000 3,165,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
additions to property and equipment (207,000) (156,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repurchase) Issuance of Common Stock (157,000) 194,000
Repayment of long-term debt (12,000) (13,000)
Net cash (used in) provided by financing activities (169,000) 181,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (61,000) $3,190,000
BEGINNING CASH AND CASH EQUIVALENTS 742,000 811,000
ENDING CASH AND CASH EQUIVALENTS $ 681,000 $4,001,000
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
REXHALL INDUSTRIES, INC.
Notes to the Condensed Financial Statements
June 30, 1998
1. Basis of Presentation:
The accompanying unaudited condensed Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of management, they include all adjustments,
consisting of normal accruals, necessary to present fairly the information
set forth herein in accordance with generally accepted accounting principles
for interim reporting.
For further information refer to the Financial Statements and footnotes
included in the Registrant's Annual Report on Form 10-K for year ended
December 31, 1997.
The Results of Operations for any interim period are not necessarily
indicative of the results to be expected for the full year.
2. Summary of Significant Accounting Polices:
Income Taxes
Income tax expense is based upon the estimated effective tax rate for the
entire fiscal year. The effective tax rate is subject to ongoing evaluation
by management.
Earnings Per Share
Basic earnings per share represents net earnings divided by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share represents net earnings divided by the weighted-
average number of shares outstanding, inclusive of the dilutive impact of
common stock options and warrants. During the three and six month periods
ended June 30,1998 and June 30,1997, the difference between basic and diluted
earning per share was due to the dilutive impact of options to purchase
common stock.
Recently Issued Pronouncements
In June 1997, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS" 130"). SFAS 130 established standards for the reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
SFAS 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed with the same prominence as other financial
statements. SFAS 130 does not require a specific financial statement format
but requires an enterprise to display an amount representing total
comprehensive income for the period covered by the financial statement.
Comprehensive income include include items such as net income, changes in
value of available for sale securities and foreign currency translation gains
and losses. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. There is no difference between net income and
comprehensive income for quarter ended June 30, 1998 or June 30, 1997.
<PAGE>
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 established standards for public business
enterprises to report information about operating segments in annual
financial statements and requires those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997. In the initial year of application, comparative information for
earlier years is to be restated. SFAS 131 need not be applied to interim
financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. The Company operates in only one business segment, the
manufacture and distribution of recreational vehicles. Accordingly, SFAS
131 will not have an impact on the Company's financial reporting.
3. Detail of Inventory December 31, 1997 June 30, 1998
Raw Material $ 4,659,000 4,487,000
Work in Process 2,124,000 1,117,000
Finished Motorhomes 2,656,000 2,247,000
TOTAL $9,439,000 $7,851,000
4. Income Per Share
The following is a reconciliation of the basic and diluted income per share
computation for the quarters ended June 30, 1997 and 1998.
Three Months Six Months
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
Net income used for
basic and diluted
income per share $ 683,000 $ 986,000 $ 1,221,000 $ 1,499,000
Weighted average
shares used In basic
computation 2,894,000 2,918,000 2,894,000 2,918,000
Weighted effect of
dilutive stock options 69,000 31,000 69,000 31,000
Shares used in diluted
computation 2,963,000 2,949,000 2,963,000 2,949,000
Income per share:
Basic $ 0.24 $ 0.33 $ 0.42 $ 0.51
Diluted $ 0.23 $ 0.32 $ 0.41 $ 0.51
During 1998, the Company issued a 5% stock dividend, resulting in the
issuance of 142,000 shares of common stock. The impact of this stock
dividend has been retroactively recorded in the per share calculation
for the three months and six months ended June 30, 1997.
5. RESTRUCTURING
During 1997, the Company's Board of Directors approved a restructuring of the
Company's operations. The restructuring plan provided for changes in the
operations, 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.
<PAGE>
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 and other related costs relating to the
closure of the Elkhart plan for approximately $105,000, which was included as
a restructuring charge in the accompanying statements of operations for the
year-ended December 31, 1997. As of June 30, 1998, the Company had a
reserve of $486,000 relating to this restructuring.
Restructuring reserve at 12/31/97 $605,000
Payments and asset write-downs through
June 30, 1998 119,000
Future cash outlay and charges $486,000
6. The Company has advanced $385,000 to key employees during the six months
ended June 30, 1998 under the Company's Incentive and Nonstatutory Stock
Option Plan (The Plan). The advances are evidenced by long term notes
receivable bearing interest annually until the maturity date. The notes bear
interest at the test rate as defined by Regulation 1.1274-4 of Internal
Revenue Code of 1986, as amended, subject to annual adjustment as approved by
the Company's Compensation Committee. The maturity date of the notes are
March 20, 2003 and April 19, 2003 and are secured by a pledge of the shares
purchased with proceeds of the notes under the Company's Plan. The number of
options exercised under the Plan was 123,000 shares during the six months
ended June 30, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. - Management Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the Three Months ended June 30, 1998 and for the Three Months ended
June 30, 1997
Sales - 1998 Compared with 1997
Sales for the quarter ended June 30, 1998, totaled $18,380,000 as compared to
$16,215,000 in 1997. The units sold for the quarter ended June 30, 1998 were
290 vs 275 in 1997. The increase in sales was principally due to the
increased production efficiencies coming on line at the California Plant as a
result of the Company's restructuring plan adopted in the forth quarter of
1997 which has also allowed sales orders to be filled to meet the recent
increased demand.
Cost of Sales - 1998 compared with 1997
The Cost of Sales as a percentage of sales for the second quarter of 1998 was
84.1% vs 83.8% in the second quarter of 1997. The cost of sales percentage]
for 1998 slightly increased due to increased production schedules and
overtime required to meet the second quarter sales demand.
Gross Profit for the second quarter of 1998 was 15.9% vs 16.2% for the
second quarter of 1997. This decrease was due to the cost increase
discussed in Cost of Sales above. The Company anticipates that gross
margins should improve in the future due to economies of scale realized in
operating one production facility. However there can be no assurance that
gross margins will improve due to the unknown nature of competitors within
the industry.
Selling, General Administrative and Other Expenses-1998 compared with 1997
Selling, General Administrative, and Other Expenses decreased in the second
quarter of 1998 by $152,000, as a result of the closure of the Indiana Plant
in conjunction with the Company's restructuring plan. Selling, General and
Administrative and Other Expenses, as a percentage of sales were 7.3% in 1998
as compared to 9.2% in the second quarter of 1997. This decrease was due to
the expense amounts being spread over a larger sales base.
Results of Operations
For the Six Months ended June 30, 1998 and for the Six Months ended
June 30, 1997
Sales - 1998 Compared with 1997
Sales for the six months ended June 30, 1998, totaled $32,550,000 as
compared to $33,880,000 in 1997. The units sold for the six months ended
June 30, 1998 were 521 vs. 582 in 1997. The decrease in sales was
principally due to the unusual amount of inclement weather conditions that
hampered first quarter retail sales efforts, limited availability of Allison
Transmissions and the lead time needed to increase production at the
California facility to compensate for the production closure at Indiana.
<PAGE>
Costs of Sales - 1998 compared with 1997
The Cost of Sales as a percentage of sales or the first six months of 1998
was 84.4% vs 85.2% in the first six months of 1997. The cost of sales
percentage for 1998 decreased due to the centralization of production
in the California facility
Gross Profit for the first six months of 1998 was 15.6% vs, 14.8% for the
first six months of 1997. This increase was due to the cost decrease
discussed in Cost of Sales above. The Company anticipates that gross
margins should improve in the future due to economies of scale realized in
operating one production facility. However, there can be no assurance that
gross margins will improve due to the unknown nature of competitors within
the industry.
Selling, General Administrative and Other Expenses - 1998 compared to 1997
Selling, General Administrative, and Other Expenses decreased in the first
six months of 1998 by $390,000, mostly as a result of the decrease in direct
selling costs associated with the reduction in sales as discussed in Sales
above. Selling, General and Administrative and Other Expenses, as a
percentage, were 8.0% of sales in 1998 as compared to 8.8% in the first six
months of 1997. The decrease was do to the expense amounts being saved due
to centralization of production in the California facility.
Item 2. - Management Discussion and Analysis or Plan of Operation
Income before taxes 1998 - compared with 1997
The income before taxes in the second quarter of 1998 was 8.6% compared to
7.0% for the same period of 1997. The increase in income before taxes in the
second quarter of 1998 was due to increased sales and efficiencies gained
from the Company's restructuring plan adopted in the fourth quarter
of 1997, including efficiencies gained from the Indiana plant closure.
Financial Condition, Capital Resources and Liquidity
The Company's cash needs are primarily to support it's inventory production,
refurbishment of facilities and equipment and systems development. The
Company has historically financed its operations primarily with internally
generated funds and trade credit. At June 30, 1999, working capital was
$9,046,000 as compared to working capital of $7,356,000 at December 31, 1997.
Cash provided by operating activities from the six months ended June 30, 1998
was $3,165,000 as compared to $315,000 for the comparable period in 1997.
During the first six months, accounts receivable increased by $354,000 and
accounts payable decreased by $330,000. These cash flow uses were offset
by a reduction in inventory of $1,588,00 and net income of $1,499,000 for
the period. During the six months ended June 30, 1998, $119,000 of cash was
used to execute the Company's restructuring plan adopted in first quarter of
1997.
Cash flows from investing activities for the six months ended June 30, 1998
consisted solely of capital expenditures of $156,000 as compared to $207,000
for comparable period in 1997. The Company's capital expenditures for the
remainder of 1998 are currently expected to be approximately $200,000 and
will relate to refurbishment and expansion of certain production facilities
equipment and the enhancement of management information system.
Cash flows from financing activities for the first six months ended June 30,
1998 consisted principally of stock issued for $199,000, a stock repurchase
of $5,000 and repayment of long term debt of $13,000. The Company will buy
back stock in the open market from time to time when the market price is
deemed to be appropriate by management. Future repurchases of common stock
for the remainder of 1998 are not expected to be significant.
<PAGE>
Management believes that funds generated from operations, available borrowing
under its line of credit and the use of trade credit will be sufficient to
satisfy the Company's working capital requirements and commitments for
capital expenditures through the second quarter of 1999.
At present, the Company has available a $3,500,000 revolving line of credit
with a bank expiring on July 1, 1999 which can be used for working capital
purposes. At June 30, 1998, no amounts were outstanding under this line but
the Company had $365,000 against the line of credit for a stand-by Letter of
Credit permitting the company to remain self-insured for Worker'
Compensation.
SEASONALITY
The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized a higher portion of its sales in the
second quarter and third quarter, consistent with the summer vacation
season. This is consistent with industry trends.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS"
OF THE PRIVATE SECURITY LITIGATION REFORM ACT OF 1995
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not related to
historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of
future events which may not prove to be accurate. These forward looking
statements involve risks and uncertainties which are more fully described in
Item 1, Part I of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
I - OTHER INFORMATION
Item 1 - Legal Proceedings
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. To date, the
preliminary approval of the settlement has been accepted by the Superior
Court of Orange County, California and pursuant to that preliminary
approval, $206,000 has been paid to the plaintiffs' attorneys. Final
approval may come in the third quarter.
Item 2. - Reports on Form 8-K
None
<PAGE>
REXHALL INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REXHALL INDUSTRIES, INC. by
(Registrant)
Date: August 12,1998 /s/William J. Rex
William J. Rex
Chairman, President and
Chief Executive Officer
Date: August 12, 1998 /s/Anthony J. Partilipo
Anthony J. Partipilo
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,001,000
<SECURITIES> 0
<RECEIVABLES> 5,732,000
<ALLOWANCES> 0
<INVENTORY> 7,851,000
<CURRENT-ASSETS> 19,928,000
<PP&E> 4,946,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,259,000
<CURRENT-LIABILITIES> 10,882,000
<BONDS> 0
0
0
<COMMON> 6,846,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,259,000
<SALES> 32,550,000
<TOTAL-REVENUES> 32,550,000
<CGS> 27,463,000
<TOTAL-COSTS> 27,463,000
<OTHER-EXPENSES> 2,591,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,496,000
<INCOME-TAX> 997,000
<INCOME-CONTINUING> 1,499,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,499,000
<EPS-PRIMARY> .51
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