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 March 31, 1999 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)
(661) 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: 3,010, 362 as of 5/13/99.
<PAGE>
REXHALL INDUSTRIES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Condensed Financial Statements:
Condensed Balance Sheets at March 31, 1999 (Unaudited) 3
and December 31, 1998
Condensed Statements of Operations (Unaudited) for the
three months ended March 31,1999
and March 31, 1998 4
Condensed Statements of Cash Flows (Unaudited) for the
three months ended March 31, 1999
and March 31, 1998 5
Notes to Condensed Financial Statements
as of March 31, 1999 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Reports on Form 8-K: None 11
Signatures 12
<PAGE>
(Audited) (Unaudited)
December 31 March 31
PART I - FINANCIAL INFORMATION 1998 1999
Item 1. - Condensed Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
ASSETS
CURRENT ASSETS
Cash $ 5,017,000 $ 6,383,000
Accounts Receivable 4,631,000 4,828,000
Inventories 12,774,000 13,808,000
Other Current Assets 33,000 18,000
Deferred Income Taxes 956,000 1,003,000
Total Current Assets 23,411,000 26,040,000
Property and Equipment - Net 4,519,000 4,677,000
Property Held for Sale 541,000 536,000
TOTAL ASSETS $28,471,000 $31,253,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 7,958,000 $ 9,076,000
Warranty Allowance 966,000 1,136,000
Accrued Legal Settlement 765,000 764,000
Accrued Legal 829,000 767,000
Dealer Incentives 830,000 847,000
Accrued Compensation and Benefits 672,000 691,000
Other Accrued Liabilities 557,000 831,000
Current Portion of Long-Term Debt 29,000 29,000
Total Current Liabilities 12,606,000 14,141,000
Deferred Income Tax Liabilities 106,000 106,000
Long Term Debt 767,000 761,000
TOTAL LIABILITIES 13,479,000 15,008,000
SHAREHOLDERS' EQUITY
Preferred Stock - no par value;
Authorized 1,000,000 shares; No
shares outstanding at December 31,
1998 and March 31, 1999 --- ---
Common Stock - no par value;
Authorized 10,000,000 shares; issued and
outstanding 3,010,000 at December 31,1998
and 3,010,000 shares at March 31, 1999 6,788,000 6,788,000
Loan receivable from exercise of options (399,000) (405,000)
Retained Earnings 8,603,000 9,862,000
TOTAL SHAREHOLDERS' EQUITY 14,992,000 16,245,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,471,000 $31,253,000
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Condensed Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, 1998 March 31, 1999
Sales $14,170,000 $ 22,233,000
Cost of Sales 12,007,000 18,094,000
Gross Profit 2,163,000 4,139,000
Selling, General, Administrative
and Other Expenses 1,258,000 2,044,000
Income Before Income Taxes 905,000 2,095,000
Income Taxes 362,000 836,000
Net Income $ 543,000 $ 1,259,000
Basic Net Income Per Common Share $ .19* $ .42
Diluted Net Income Per Common
and Equivalent Share $ .19* $ .42
Weighted Average
Shares Outstanding-Basic 2,864,000 3,010,000
Weighted Average
Shares Outstanding - Diluted 2,913,000 3,017,000
*Originally reported as $.20 per share based on 2,722,000 shares outstanding.
However, considering the 5% stock dividend of 142,000 shares on June 19,
1998, earnings were adjusted to $.19 per share.
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Condensed Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 543,000 $ 1,259,000
Adjustments to reconcile net income
to net cash provided by (used in)
Operating Activities:
Depreciation and Amortization 83,000 67,000
Change in Deferred Income Taxes --- (47,000)
(INCREASE) DECREASE IN:
Accounts Receivable (1,606,000) (197,000)
Inventories 691,000 (1,034,000)
Other (21,000) 9,000
Income Tax Receivable 337,000 ---
INCREASE (DECREASE) IN:
Accounts Payable (308,000) 1,118,000
Other Current Liabilities 21,000 400,000
Dealer Incentives (119,000) 17,000
Net cash provided by (used in)
operating activities (379,000) 1,592,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
Additions to property and equipment (118,000) (220,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (6,000) (6,000)
Repurchase of stock (5,000) ---
Net cash used in financing activities (11,000) (6,000)
NET (DECREASE) INCREASE IN CASH (508,000) 1,366,000
BEGINNING CASH BALANCE 811,000 5,017,000
ENDING CASH BALANCE $ 303,000 $ 6,383,000
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
REXHALL INDUSTRIES, INC.
Notes to the Condensed Financial Statements
March 31, 1999
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. Certain reclassifications have been made
of prior years to conform to current period financial statement presentation.
For further information refer to the Financial Statements and footnotes
included in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
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. During the three months ended March 31, 1999, 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 1998, FASB issued Statement of Financial Accounting Standard No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for
all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has determined that the disclosure requirements from this
statement will not impact the financial statements of the Company.
3. Detail of Inventory December 31, 1998 March 31,1999
Raw Material $ 7,593,000 $ 8,606,000
Work in Process 1,522,000 1,153,000
Finished Motorhomes 3,659,000 4,049,000
TOTAL $12,774,000 $13,808,000
<PAGE>
4. Income Per Share
The following is a reconciliation of the basic and diluted income per share
computation for the quarters ended March 31, 1998 and 1999.
Three Months Ended
March 31, 1998 March 31, 1999
Net income used for basic and
diluted income per share $ 543,000 $ 1,259,000
Shares of Common Stock and
Common Stock equivalents:
Weighted average shares used
In basic computation 2,864,000 3,010,000
Dilutive effect of Stock Options 49,000 7,000
Shares used in diluted computation 2,913,000 3,017,000
Income per share:
Basic $ 0.19 $ 0.42
Diluted $ 0.19 $ 0.42
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 ended March 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. - Management Discussion and Analysis of Financial Condition and
Results of Operations. All statements in this discussion and analysis which
relate to future sales, costs, capital expenditures or earnings are
"Forward-Looking Statements" and should be read subject to the assumptions
contained in the "Forward-Looking Statements".
Results of Operations
For the Three Months ended March 31, 1999 and for the Three Months ended
March 31, 1998
Sales - 1999 Compared with 1998
Sales for the first quarter ended March 31, 1999 were $22,233,000 as compared
to $14,170,000 for the first quarter in 1998. This represents a 56.9%
increase over the prior year. Units sold for the quarter ended March 31,
1999 were 327 as compared to 231 for the prior year quarter end. The
increase in sales may be attributed to the acceptance of the double slide
motorhome design both in the retail and wholesale market, overall acceptance
of the Rexhall product line by the ultimate consumer, and the increase in the
production capability of the California facility. The Company anticipates
the volume to continue, but does not expect the percentage increase to be as
high in future quarters for 1999 compared to the quarters in 1998.
Cost of Sales - 1999 compared with 1998
Cost of Sales for the quarter ended March 31, 1999 as a percentage of sales
was 81.4%, showing improvement when compared to the prior year quarter ended
March 31, 1998 of 84.7%.
Gross Profit for the first quarter of 1999 was 18.6% as compared to 15.3% for
the quarter ended March 31, 1998. The increase in the gross profit
percentage was due to efficiencies implemented at the California facility as
discussed above. The Company anticipates the margins to hold or improve, but
there can be no assurance that this will happened due to the unknown nature
of the impact of competition within the industry.
Selling, General Administrative and Other Expenses-1999 compared with 1998
Selling, General and Administrative and Other Expenses increased to 9.2% as a
percentage of sales when compared to 8.9% for the quarter ended March 31,
1998. Administrative bonuses, dealer incentives, along with an increase in
warranty expense were the primary causes of the increase.
The election by a new dealer to take dealer incentives rather than the sales
discounts contributed to an increase in 1999 over 1998 of such incentive
costs.
Beginning in the fourth quarter of 1998, the Company began accelerating the
processing of warranty claims. The increased response to dealers has
resulted in heightened warranty costs for the period. In addition such costs
are linked to the increase in sales volume.
The compensation costs associated with an increase in profitability and unit
sales showed relative increases.
Income Before Taxes - 1999 Compared to 1998
Income before taxes were $2,095,000 for the quarter ended March 31, 1999 as
compared to $905,000 in the first quarter of prior year. The increase in
income taxes reflects an improvement in the Company's pre-tax income between
years. Income taxes are provided based upon the estimated effective tax rate
for the entire fiscal year applied to the pre-tax income for the period. The
effective tax rate is subject to ongoing evaluation by management.
<PAGE>
Financial Condition, Capital Resources and Liquidity
The Company has relied primarily on internally generated funds, trade credit
and debt to finance its operations and expansions. As of March 31, 1999, the
Company had working capital of $11,899,000, compared to $10,805,000 at
December 31, 1998. The $1,094,000 increase in working capital is primarily
due to a $1,366,000 increase in cash and a $1,034,000 increase in
inventories, partially offset by a $1,118,000 increase in accounts payable.
The increase in cash and inventory relates to increased 1999 income collected
and increases in chassis and finished inventory at March 31,1999, to meet
increased sales demands.
As of March 31, 1999 the Company has a $3,500,000 line of credit with Bank of
America which can be used for working capital purposes. The line expires on
July 31, 1999. Under this line of credit, $220,000 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.
At March 31, 1999, no amounts were outstanding under the line of credit
agreement. The line of credit contains various covenants. The Company was in
compliance with such covenants as of March 31, 1999.
The Company has a $1,866,000 line of credit with General Motors Acceptance
Corporation, a chassis vendor. Borrowings under the line bear interest at an
annual rate of prime plus 1% (8.75% at March 31, 1999). All borrowings
are secured by the Company's assets. The outstanding balance included in
accounts payable at March 31, 1999 was $306,000.
The Company has a line of credit with another chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $4,000,000 limit. Borrowings under the line
bear interest at an annual rate of prime plus 1% (8.75% at March 31, 1999).
All borrowings are secured by the Company's assets. The outstanding balance
included in accounts payable at March 31, 1999 was $5,183,000. (To which
no objection has been made.)
Capital expenditures during the first quarter of 1999 were $220,000.
Management anticipates a reduction in the rate of capital expenditures for
the remainder of 1999 related to refurbishment and expansion of certain
production facilities, production equipment and the enhancement of management
information systems.
The Company anticipates that it will be able to satisfy its ongoing cash
requirements through 1999, including payments related to the legal settlement
and expansion plans at the California facility, primarily with cash flows
from operations,supplemented, if necessary, by borrowings under its revolving
credit agreement.
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.
Year 2000
The Year 2000 issue is primarily the result of computer programs using a
two-digit format, as opposed to four digits,to indicate the year. Computer
programs that are date dependent are found in the software that operate many
IT systems as well as in the computer based devices which control many types
of electronic equipment. Computer programs that are not Year 2000 compliant
will be unable to interpret dates beyond the year 1999, which could cause
a system failure or other computer errors, leading to a disruption in the
operation of the related IT systems or electronic equipment.
The Company has established and is implementing a program to address the Year
2000 issue. The Year 2000 program included the implementation of previously
planned systems as well as specific Year 2000 programs. All programs are
on track for completion before the year 2000 with various applications being
upgraded or replaced as needed. The failure to correct a material Year 2000
problem may result in an interruption in, or a failure of, certain normal
business operations or activities. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Additionally, the Year 2000 program has not deferred any other
company projects that will have a material impact on its results of
operation, liquidity or financial condition.
<PAGE>
IT Systems
The Company began undertaking changes to bring non-compliant systems and
accompanying methodology to Year 200 compliant standards. In furtherance of
the Year 2000 program, the Company acquired a new Year 2000 compliant
client server enterprise system and hired a full time IS professional to
oversee the implementation of the program.
The IT systems have been inventoried and the necessary Year 2000 upgrades,
replacements and retrofits identified. These projects are presently in
various stages of analysis, development and implementation. The Year 2000
program is currently scheduled to be completed by the fourth quarter of 1999.
Non-IT Systems
Non-IT Systems may contain date sensitive embedded technology requiring the
Year 2000 upgrades. Examples of this technology include security equipment
such as access and alarm systems, as well as facilities equipment such as
heating and air conditioning units.
The Company is a product manufacturer; therefore, the "embedded chip" issue
relates to production line components as well as to the equipment used by the
Company. Production line components and facilities and equipment are being
inventoried and assessments are in progress.
The Company is also addressing the readiness of its critical suppliers and
customers. The Company has inventoried its critical suppliers, and is
sending letters to suppliers, and where appropriate, contacting certain
suppliers requesting Year 2000 certification. The Company is also contacting
certain key customers where potential Year 2000 problems may exist. In
certain areas where the Company relies on products supplied by manufacturers
for the systems provided to its customers, the Company is seeking standard
Year 2000 warranties that, to the extent assignable, may be transferred
to customers.
Costs
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's results of
operations, liquidity and financial condition. The estimated total cost of
the Year 2000 effort is expected to be under $100,000. This estimate does
not include the cost of the Company's previously planned business critical
systems upgrades, which have not been accelerated due to the Year 2000
problem.
Risks and Contingency Planning
The Company has identified and assessed the areas that may be at risk related
to the Year 2000 problem. The failure to correct a material Year 2000
problem may result in an interruption in, or a failure of, certain normal
business operations or activities. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of
third-party suppliers, the Company is unable to determine at this time
whether the consequences of the Year 2000 failures will have a material
impact on the Company's results of operations, liquidity or financial
condition. The Company has initiated contingency planning for possible Year
2000 issues, including such factors as supply chain and banking operations.
Where needed, the Company will establish contingency plans based on the
Company's actual testing experience and assessment of outside risks. The
Company anticipates final contingency plans to be in place by June 1999. The
Year 2000 program is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem. The Company believes that through
its Year 2000 program, the possibility of significant interruptions of normal
business operations should be reduced.
Readers are cautioned that forward looking statements contained in the Year
2000 Update should be read in conjunction with the Company's disclosures
under the heading "Forward Looking Statements".
Forward-Looking Statements
Our reports contain forward-looking statements, usually expressed as our
expectations or our intentions. These are based on assumptions and on facts
known to us today, and we do not intend to update statements in this report.
Rexhall's business is both seasonal and cyclical, and the timing of the
business cycle cannot be predicted. Its business is also subject to
increases in material costs, and pricing and other pressures from
substantially larger competitors, labor disruptions and adverse weather.
<PAGE>
The recreational vehicle industry has in the past enjoyed favorable
recreational vehicle industry sales when we have low interest rates, low
unemployment, and ready availability of motor fuel. Finally, dealer
relations for the entire recreational vehicle industry may be changed by
dealers joining together in financial or operating arrangements just now
being formed, which may be similar to developments in the automotive or
manufactured housing industries. Management intends to remain aware of these
factors and react to them, but cannot predict their timing or significance.
Other Information
Item 1 - Legal Proceedings
Legal Settlement -Bruce Elworthy and Anne B. Marshall (Elworthy and Marshall)
sued the Company in June 1995 in the Superior Court of the County of Los
Angeles. The suit alleged that a leveling system on a motorhome, purchased
from Rexhall was defective and caused damages to Elworthy and Marshall of
$1,000,000 for medical expenses, loss of earnings and pain and suffering.
Rexhall prevailed in its defense with zero dollars being awarded to the
plaintiffs,however, the verdict is subject to appeal.
Item 2. - Reports on Form 8-K
a) 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 there unto duly authorized.
REXHALL INDUSTRIES, INC. by
(Registrant)
Date: May 15, 1999 /S/William J. Rex
William J. Rex
Chairman, President and
Chief Executive Officer
Date: May 15, 1999 /S/Thomas M. Zirnite
Thomas M. Zirnite
Chief Financial Officer
