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, 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 8/4/99.
<PAGE>
REXHALL INDUSTRIES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Financial Statements (Unaudited):
Condensed Balance Sheets at June 30, 1999 3
and December 31, 1998
Condensed Statements of Earnings for the
three and six months ended June 30,1999
and June 30, 1998 4-5
Condensed Statements of Cash Flows
for the six months ended June 30, 1999
and June 30, 1998 6
Notes to Condensed Financial Statements
as of June 30, 1999 7-8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Legal Proceedings 13
Reports on Form 8-K: NONE
Signatures 14
<PAGE>
(Audited) (Unaudited)
December 31 June 30
PART I - FINANCIAL INFORMATION 1998 1999
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC. CONDENSED BALANCE SHEETS
ASSETS
CURRENT ASSETS
Cash $ 5,017,000 $ 4,779,000
Accounts Receivable 4,631,000 6,013,000
Inventories 12,774,000 16,928,000
Other Current Assets 33,000 88,000
Deferred Income Taxes 956,000 1,207,000
Total Current Assets 23,411,000 29,015,000
Property and Equipment - Net 4,519,000 4,787,000
Property Held for Sale 541,000 530,000
TOTAL ASSETS $28,471,000 $34,332,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 7,958,000 $10,760,000
Warranty Allowance 966,000 1,080,000
Accrued Legal Settlement 765,000 757,000
Accrued Legal 829,000 751,000
Dealer Incentives 830,000 995,000
Accrued Compensation and Benefits 672,000 899,000
Other Accrued Liabilities 557,000 683,000
Current Portion of Long-Term Debt 29,000 28,000
Total Current Liabilities 12,606,000 15,953,000
Deferred Income Tax Liabilities 106,000 125,000
Long Term Debt 767,000 755,000
TOTAL LIABILITIES 13,479,000 16,833,000
SHAREHOLDERS' EQUITY
Preferred Stock - no par value;
Authorized 1,000,000 shares; No
shares outstanding at December 31, 1998
and June 30, 1999 --- ---
Common Stock - no par value;
Authorized 10,000,000 shares; issued and
outstanding 3,010,000 shares at December 31, 1998
and 3,010,000 shares at June 30, 1999 6,788,000 6,788,000
Loan receivable from exercise of options (399,000) (399,000)
Retained Earnings 8,603,000 11,110,000
TOTAL SHAREHOLDERS' EQUITY 14,992,000 17,499,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,471,000 $34,332,000
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Condensed Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
June 30, 1998 June 30, 1999
Sales $18,629,000 $ 20,937,000
Cost of Sales 15,456,000 17,271,000
Gross Profit 3,173,000 3,666,000
Selling, General, Administrative
Expenses and Other Expenses 1,582,000 1,572,000
Earnings Before Income Taxes 1,591,000 2,094,000
Income Taxes 635,000 846,000
Net Earnings $ 956,000 $ 1,248,000
Basic Earnings Per Share $ .33 $ .41
Diluted Earnings Per Share $ .32 $ .41
Weighted Average
Shares Outstanding - Basic 2,918,000 3,010,000
Weighted Average
Shares Outstanding - Diluted 2,949,000 3,010,000
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Six Months Ended
June 30, 1998 June 30, 1999
Sales $ 32,954,000 $ 43,170,000
Cost of Sales 27,463,000 35,365,000
Gross Profit 5,491,000 7,805,000
Selling, General, Administrative
Expenses and Other Expenses 2,995,000 3,616,000
Earnings Before Income Taxes 2,496,000 4,189,000
Income Taxes 997,000 1,682,000
Net Earnings $ 1,499,000 $ 2,507,000
Basic Earnings Per Share $ .51 $ .83
Diluted Earnings Per Share $ .51 $ .83
Weighted Average
Shares Outstanding -Basic 2,918,000 3,010,000
Weighted Average
Shares Outstanding - Diluted 2,949,000 3,010,000
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, 1998 June 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 1,499,000 $ 2,507,000
Adjustments to reconcile net income to net
cash provided by
Operating Activities:
Depreciation and Amortization 167,000 138,000
Net change in deferred tax assets and liabilities --- (232,000)
(INCREASE) DECREASE IN:
Accounts Receivable (354,000) (1,382,000)
Inventories 1,588,000 (4,154,000)
Other Assets (88,000) (55,000)
Income Tax Receivable 312,000 ---
INCREASE (DECREASE) IN:
Accounts Payable (330,000) 2,802,000
Other Accrued and Current Liabilities 514,000 381,000
Dealer Incentives (143,000) 165,000
Net cash provided by operating activities $ 3,165,000 $ 170,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities
Additions to property and equipment (156,000) (395,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (13,000) (13,000)
Issuance of common stock 194,000 ---
Net cash (used in) provided by
financing activities 181,000 (13,000)
NET INCREASE (DECREASE) IN CASH $ 3,190,000 $ (238,000)
BEGINNING CASH BALANCE 811,000 5,017,000
ENDING CASH BALANCE $ 4,001,000 $ 4,779,000
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
REXHALL INDUSTRIES, INC.
Notes to the Condensed Financial Statements
June 30, 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.
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, 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.
Reclassifications
Certain reclassifications have been made to prior year to conform to current
period financial statement presentation.
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, 2000.
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 June 30,1999
Raw Material $ 7,593,000 $ 9,733,000
Work in Process 1,522,000 2,991,000
Finished Motorhomes 3,659,000 4,204,000
TOTAL $12,774,000 $16,928,000
<PAGE>
4. Income Per Share
The following is a reconciliation of the basic and diluted earnings per share
computation for the quarters ended June 30, 1998 and 1999.
Three Months Six Months
6/30/98 6/30/99 6/30/98 6/30/99
Net earnings used
for basic and diluted
earnings per share $ 956,000 $ 1,248,000 $ 1,499,000 $ 2,507,000
Weighted average shares used
in basic computation 2,918,000 3,010,000 2,918,000 3,010,000
Dilutive effect of
stock option 31,000 --- 31,000 ---
Weighted average shares used
in dilutive computation 2,949,000 3,010,000 2,949,000 3,010,000
Earnings per share:
Basic $ 0.33 $ 0.41 $ 0.51 $ 0.83
Diluted $ 0.32 $ 0.41 $ 0.51 $ 0.83
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, 1998.
5. Long-Term Debt
The Company has a $3,500,000 line of credit with a bank. Under this line,
the Company has set aside $220,000 for an irrevocable standby letter of
credit issued to the Department of industrial Relations for worker's
compensation. At June 30, 1999 no amounts were outstanding. The line
contains various covenants, for which the Company was in compliance at
June 30, 1999. The line expired July 31, 1999. The Company has negotiated
a renewal of the line through 2001, but has not executed the new agreement.
The Company believes that the renewal will be executed in August 1999.
The Company has a line of credit with Ford Motor Credit Corp. (FMCC)
permitting the borrowings up to $4,000,000. Borrowings under the line bear
interest at 8.75% at June 30, 1999. The outstanding balance at June 30, 1999
was $6,600,000. The $2,600,000 over advance is currently being negotiated
with FMCC. The Company is confident that this temporary over advance will be
approved or the line expanded. The Company has adequate resources to pay
down this amount to the borrowing limit if approval is not obtained.
<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 June 30, 1999 and for the Three Months ended
June 30, 1998
Sales - 1999 Compared with 1998
Sales for the second quarter ended June 30, 1999 were $20,937,000 compared to
$18,629,000 for the same period prior year. This represents a 12.4% increase
over the comparable quarter in 1998. Units sold for the second quarter 1999
were 309 compared to 290 in the second quarter 1998. The increase in sales
continues to be the acceptance of the double slide motorhome design, sold at
a higher sales price, and consumer acceptance of the Rexhall product line.
The Company expects continued growth but does not expect future quarters to
reflect such significant increases when compared to the same quarters in
1998.
Cost of Sales - 1999 compared with 1998
Cost of Sales as a percentage of sales was 82.5% for the second quarter 1999
compared to 83.0% for the second quarter 1998. The percentage decline for
1999 was due to continued efficiencies in production resulting from a
consolidation of production facilities in California and a reduction in
overtime compared to second quarter of 1998.
Gross Profit improved to 17.5% for the second quarter of 1999 compared to
17.0% for the same period of 1998. This improvement is a direct result of
the efficiencies described in Cost of Sales. The Company is working
diligently to continue to improve the Gross Profit, but, there can be no
assurance due to the unknown nature of competitors within the industry.
Selling, General Administrative and Other Expenses-1999 compared with 1998
Selling, General Administrative and Other Expenses remained constant when
comparing dollar amounts of the quarters ended June 30, 1999. When comparing
as a percentage of sales, the quarter ended June 30,1999 is 7.5% versus 8.5%
for the same quarter in the prior year. Managing expenses more closely has
allowed revenue growth without a comparable growth in expenses.
Results of Operations
For the Six Months ended June 30, 1999 and for the Six Months ended
June 30, 1998
Sales - 1999 Compared with 1998
Sales for the six months ended June 30, 1999, totaled $43,170,000 compared to
$32,954,000 for the same period in 1998. This represents a 31% increase over
the prior year. Units sold for the six months ended June 30, 1999 were 636
compared to 521 for the same period in the prior year. The increase in units
sold for the six months ended June 30, 1999 is 22% higher than the same
period in 1998. The increase in dollar volume compared to the unit volume
increase reflects the increased acceptance of the double slide and diesel
units and the additional revenue generated from these more expensive units.
The Company anticipates continued growth but does not anticipate future
quarters to reflect as significant increases when compared to the same
quarters in 1998.
<PAGE>
Costs of Sales - 1999 compared with 1998
Cost of Sales as a percentage of sales for the six months ended June 30, 1999
improved to 81.9% compared to 83.3% for the same period in 1998. Implemented
efficiencies in production along with a reduction of overtime have
contributed to the improvement in cost of sales.
Gross Profit rose to 18.1% for the six months ended June 30, 1999 as compared
to 16.7% for the same period in the prior year. The improvement in gross
profit is the result of the decrease in expenses as described in cost of
sales. The Company is working towards continued improvement in Gross Profit,
but there can be no assurance that Gross Profit will improve due to the
unknown nature of competitors within the industry.
Selling, General Administrative and Other Expenses - 1999 compared to 1998
Selling, General Administrative and Other Expenses rose by $621,000 for the
six months ended June 30, 1999 when compared to the same period in 1998. The
percentage of sales for the six months ended June 30, 1999 was 8.4% compared
to 9.1% for the same period in the prior year. Administrative bonuses and
dealer incentives, along with an increase in warranty expense were the major
portions of the dollar increase for the six months ended June 30, 1999. As a
percentage of sales, expenses have not increased in relation to the increase
in revenue.
Income before taxes 1999 - compared with 1998
The increase in income taxes of $685,000 reflects 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.
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 June 30, 1999, the
company had working capital of $13,062,000 compared to $10,805,000 at
December 31, 1998. The $2,221,000 increase in working capital is primarily
due to a $4,154,000 increase in inventories and a $1,382,000 increase in
receivables, partially offset by a $2,802,000 increase in accounts payable.
The increase in inventory relates to increased chassis and finished inventory
at June 30, 1999 to meet production demands related to model year changes and
product expansion.
As of June 30, 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 worker's compensation insurance in California. At June 30,
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 June 30, 1999. The Company is currently
negotiating a renewal of the credit line through 2001. The Company is
confident that the renewal will be executed with the same terms and
conditions.
The Company has a line of credit with a 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 June 30, 1999). All
borrowings are secured by the Company's assets. The outstanding balance
included in accounts payable at June 30, 1999 was $6,600,000. The temporary
over-advance is currently being negotiated and the Company believes confident
that the over-advance will be approved or the line expanded. The Company has
adequate resources to pay down this amount to the borrowing limit if approval
is not obtained.
<PAGE>
Capital expenditures during the first six months of 1999 were $395,000.
Management anticipates capital expenditures for the remainder of the 1999 to
be $500,000 for 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.
IT Systems
The Company began undertaking changes to bring non-compliant systems and
accompanying methodology to Year 2000 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.
<PAGE>
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. 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.
<PAGE>
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. The verdict is currently under 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 thereunto duly authorized.
REXHALL INDUSTRIES, INC. by
(Registrant)
Date: /s/William J. Rex
William J. Rex
Chairman, President and
Chief Executive Officer
Date: /s/Thomas M. Zirnite
Thomas M. Zirnite
Chief Financial Officer
