UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM 10-K
(Mark One)
[x] Annual report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1998
OR
[ ]Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [No fee required]
(No fee required)
For the Transition period from to
Commission file number: 0-10067
_________________________________
REXHALL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
California 95-4135907
(State or other jurisdiction
of Incorporation or organization) (IRS Employer Identification No.)
46147 7th Street West
Lancaster, CA 93534
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 726-0565
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange on which registered: NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods as the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of March 18, 1999 the aggregate market value of voting stock held by
non-affiliates was approximately $12,063,031. Shares of common stock held by
each officer, director and holder of 5% or more of the outstanding Common
Stock of the Registrant have been excluded in that such persons may be deemed
to be affiliates. Total shares of common stock held by those deemed to be
affiliates at March 18, 1999 totaled 1,570,000. This determination of
affiliate status is not necessarily a conclusive determination of other
purposes.
As of March 30, 1999 there were 3,010,362 shares of the Registrant's common
stock outstanding.
<PAGE>
PART I
Item 1. Business
Rexhall Industries, Inc. (the "Company") designs, manufactures and sells
Class A motorhomes. Class A motorhomes are self-contained and self-powered
recreational vehicles used primarily in conjunction with leisure travel and
outdoor activities.
The Company began operations in July 1986 as a general partnership and
conducted business activities in that form until December 31, 1986, when the
assets and business of the partnership were contributed to Rexhall
Industries, Inc., a California corporation, which assumed the liabilities of
the partnership. Rexhall Industries, Inc. was incorporated in June 1986 and,
except for organizational activities, conducted no operations until January
1, 1987. In June 1989, the Company completed an initial public offering of
1,150,000 shares of Common Stock (including 150,000 sold upon exercise of the
underwriters' over-allotment option). As used herein, the "Company" refers
to Rexhall Industries, Inc. and the predecessor partnership.
The Company produces all of its products from its manufacturing
facility in Lancaster, California, which also serves as its Corporate
Headquarters. The Company has subcontracted to handle its service
and warranty in the eastern half of the country.
Class A Motorhomes
Based upon industry standards established by the Recreation Vehicle
Industry Association ("RVIA"), the Company manufactures certain product lines
classified as conventional or class A motorhomes.
Conventional or class A motorhomes are self-powered vehicles built on a
motor vehicle chassis, with engine and drive train components which are
supplied by a motor vehicle manufacturer (i.e. Ford, Workhorse Custom Chassis
LLC (formerly GM), and Spartan. The interior of the vehicle typically
includes a driver's area, kitchen, bathroom, dining and sleeping areas.
Class A motorhomes are self-contained with their own lighting, heating,
cooking and refrigeration facilities, waste disposal and water storage tanks,
permitting occupancy without requiring connection to utilities. While not
designed or intended as permanent housing, Class A motorhomes do provide
comfortable living quarters for short periods, particularly for people
interested in travel and outdoor recreational activities.
Class A motorhomes are different from mobile homes, which are
manufactured housing designed for permanent or semi-permanent residential
dwelling and, although movable, are not used for transportation. Class
A motorhomes are also different from other recreational vehicles, such as
class B van campers, which are smaller than, and do not provide all of the
features that typically are standard on, Class A motorhomes; Class C mini-low
profile and compact motorhomes, which are built on a van or small truck
chassis that is supplied with an engine and finished cab section and are
differentiated by size; and travel trailers, which are non-motorized vehicles
designed to be towed by automobiles, pick-up trucks and vans, and generally
by law may not be used as living quarters unless stationary. Travel trailers
are further classified as conventional, fifth wheel and park trailers and
generally are differentiated by the method and vehicle employed for towing,
size configuration and use. Other recreational vehicle categories include
folding camping trailers, truck campers and van conversions.
As Class A motorhomes are self-contained with kitchen, bathroom
facilities and sleeping quarters, it is eligible to be treated as a
"qualified residence" under the Internal Revenue Code of 1986, as amended.
Thus, as in the case of other recreational vehicles suitable for overnight
use, a purchaser may generally deduct interest on debt incurred to acquire a
Class A motorhome provided the purchaser designates and uses it as one of no
more than two residences and otherwise meets the requirements of the Internal
Revenue Code of 1986.
Industry Source of Information: Recreation Vehicle Industry Association in
Reston, Virginia
The following table sets forth comparisons of units and dollar sales of
all recreational vehicles and ClassA motorhomes in the United States compared
with units and dollar sales of the Company during the years ended December
31, 1996, 1997 and 1998:
% Change % Change
Unit From Prior Revenues From Prior
Sales Year (000) Year
Total Recreational Vehicles
1998 441,300 .6% 10,337,006 6.6%
1997 438,800 (6.0)% 9,696,588 (3.8)%
1996 466,800 (1.8)% 10,081,182 2.1%
Class A Motorhomes
1998 42,900 14.1% 3,249,846 23.6%
1997 37,600 3.0% 2,629,180 14.0%
1996 36,500 10.6% 2,305,788 5.3%
Rexhall Industries, Inc.
1998 1,122 3.7% 71,454 13.4%
1997 1,082 (7.5)% 63,012 (3.0)%
1996 1,170 2.4% 64,959 7.0%
Approximately 77 million Americans were born between the years of 1946
and 1964. Commonly known as "baby boomers", this demographic accounts for
what the Company believes to be a rapidly growing population of potential
Class A motorhome purchasers. Typically, Class A motorhome buyers are over
the age of 60, however, increasing disposable income in the 40 to 60 age
group is growing the potential Class A market. The Company's continued
product development combined with the unified efforts of the RV industry as a
whole to capture the attention of this buying demographic, would indicate
significant future growth potential for the Company.
The Company's Motorhomes
The Company's motorhomes are built with attention to quality. The
materials used by the Company in constructing its motorhomes are commonly
found on more expensive models and, in the opinion of management,generally
are superior to those found on motorhomes in the same price range as the
Company's motorhomes. The Company uses only steel, as opposed to wood or
aluminum, in framing its cage. The Company uses gel coated, high gloss,
one-piece fiberglass panel for the sidewalls, front cap, rear cap and roof,
giving the look of a more expensive motorhome and eliminating many of the
seams commonly found in most motorhomes. Additionally, fiberglass generally
allows easier repair of collision marks and scrapes as opposed to aluminum,
the other material commonly used in sidewall construction. For insulation,
the Company uses polyurethane foam and polystyrene.
<PAGE>
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 line offers many models and floor plans with
multiple decors. These various models come with the following chassis and
engine types (See Item 1. Raw Materials and Chassis.):
- Ford F-53 chassis with a V-10 electronically fuel injected engine
- Chevrolet P-30 chassis with the 290 H.P. Vortec engine
- Spartan Highlander chassis with a 300 H.P. engine
Models range in size from an overall length of approximately 23 feet to
approximately 39 feet with wheelbase ranging from 158 inches to 252 inches.
All models have an overall maximum width of eight and one half feet (102"
widebody) with a height (with air conditioner) of just over eleven 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, each
motorhome is equipped to sleep four to six adults comfortably. Standard
features and equipment on all Rexhall models include 75 or 80 gallon gas tank
(depending on chassis and model), halogen headlights, dash air conditioning,
double door flush mounted refrigerator/freezer, three burner range with
automatic pilot and optional conventional oven, radial tires, stabilizing
air bags, 30,000 B.T.U. furnace, day/night shades and extra large batteries
mounted on a slide-out tray for easy access and service. Additional standard
equipment includes a television, television antenna, AM/FM stereo radio with
cassette player, auxiliary power generators, convection microwave oven, roof
air conditioners, and video tape player. Optional equipment include leak
detector for propane, back up camera, washer and dryer, hydraulic leveling
jacks, electric and heated mirrors, 50 AMP service, ice maker and power entry
step for easier entry into the motorhome. Some models may varyin standard
equipment.
Suggested retail prices of Aerbus, Rexair, or RoseAir models with
standard equipment range from $75,000 to $148,000 (diesel models) and fully
equipped with available options from $82,000 to $175,000. Suggested retail
prices for the Vision and American Clipper models (entry level) with standard
equipment range from approximately $60,000 to $76,000 (add $5,000 with
available options). Anthem diesel models range from $99,000 to $105,000 with
standard equipment, and with available options from $105,000 to $114,000.
Specialty Vehicles
In addition to its line of Class A motorhomes, the Company also
manufactures and sells specialty vehicles. These vehicles are designed for
diverse purposes and varied users from the disabled to mobile command posts
for police and fire departments and even mobile classrooms. This year the
company manufactured several vehicles for use by the United States Air Force
as mobile telemetry testing vehicles. During 1996, 1997, and 1998, sales of
specialty vehicles amounted to less than 1% of total revenues. Although the
Company has no intention of phasing out its specialty vehicle business, it
anticipates that such business will constitute a low percentage of the
Company's overall revenues in the future.
<PAGE>
Production
The Company's manufacturing facility has been designed to permit
production of motorhomes on an assembly-line basis. At the beginning of the
line and in an effort to achieve uniformity, a partial steel cage is
pre-assembled by the Company on a jig. The steel cage is welded together on
the jig and then welded to a wall that is welded directly to the chassis to
form what the Company terms a "uni-body" design. Steel outriggers are welded
in place to support floor and basement storage compartments.
Seamless gel coated fiberglass is vacuum bonded to a steel frame to form
the exterior walls; additionally, the roof wall is vacuum bonded. When all
the exterior walls are in place, polyurethane foam insulation is sprayed
inside the ceiling radius to fill voids and further bond the exterior shell
to the frame. Exterior doors and interior paneling complete the basic
construction. Vehicle components, cabinet work, auxiliary power units,
appliances, plumbing fixtures, floor coverings, window treatments, hardware,
furniture and furnishings are then added. These components are generally
purchased in finished form from various suppliers, none of which are a sole
source.
The Company manufactures its own drivers door, compartment doors,
grills, bumpers, cabinet work, draperies, fiberglass parts and also makes
some of the furniture used in its motorhomes. The Company plans to continue
this practice of producing many of the components and certain of the
production equipment used in the manufacturing of its motorhomes as long as
such practice is practical and results in cost savings.
The Company operated one production shift, producing an average of 95
units per month during 1998. Total gross units produced in 1998, was 1,147
units. Increases in production can be achieved at a relatively low
incremental cost on the existing production shift by increasing the number of
production employees.
Raw Materials and Chassis
The principal raw materials used in the manufacturing process are steel,
fiberglass, lumber, plywood and plastic. These materials are purchased from
third parties and are generally available from numerous sources. The Company
has not experienced any significant delays or problems in acquiring raw
materials needed for production.
The principal component used in the manufacturing process is the
chassis, which includes the engine and drive train. The Company obtains
front engine chassis from Ford Motor Company and Chevrolet Motor Division
(GM Corporation, now Workhorse Custom Chassis, LLC). Rear engine pushers are
purchased from Spartan Motors under a separate arrangement. The Company
acquires Ford products under a converters agreement which is used by the
Company to purchase the chassis with financing provided by the supplier's
affiliate. The financing provided to obtain chassis under the converters
agreement bears interest at the rate prime plus 1% for both lenders (8.75% at
December 31, 1998) and is secured by the Company's assets. Upon starting
production of the motorhome, the Company is required to pay to the lender the
amount advanced for the purchase of the underlying chassis plus accrued
interest. The rear engine diesel chassis from Spartan has net 30 day terms.
Approximately 94% of all chassis were purchased from Ford and GM.
In the first quarter of 1999, GM completed the sale of their motorhome
chassis manufacturing division to Workhorse Custom Chassis, LLC. Future
purchases of chassis, previously provided by GM, will be purchased from
Workhorse Custom Chassis, LLC. Availability of chassis ordered from
Workhorse Custom Chassis, LLC, appears to be okay, however, the Company has
little experience with this vendor.
<PAGE>
As is standard in the industry, arrangements with chassis suppliers
provide that either the Company or the chassis supplier may terminate their
relationship at any time. To date, the Company has not experienced any
substantial shortages of chassis. The recreational vehicle industry as a
whole has from time to time experienced shortages of chassis due to the
concentration or allocation of available resources by suppliers of chassis to
the manufacturers of vehicles other than recreational vehicles or for other
causes. If Ford were to discontinue the manufacturing of motorhome chassis,
or if as a group all of the Company's chassis suppliers significantly reduced
the availability of chassis to the industry, the Company could be adversely
effected.
Sales and Distribution
Sales are usually made to dealers on terms requiring payments within ten
days or less of the dealer's receipt of the unit.
Most dealers have floor plan financing arrangements with banks or other
financing institutions under which the lender advances all, or substantially
all, of the purchase price of the motorhome. The loan is collateralized by a
lien on the purchased motorhome. As is customary in the industry, the
Company has entered into repurchase agreements with these lenders. In
general, the repurchase agreements provide that in the event of default by
the dealer on its agreement to the lending institution, the Company will
repurchase the motorhome so financed. Dealers do not have the right to
return motorhomes, except by statute in some states.
The Company's liability under the repurchase agreements is limited to
the total unpaid balance (including interest and other charges) owed to the
lending institution by reason of its extension of credit to purchase the
Company's motorhomes. The contingent liability under repurchase agreements
varies significantly from time to time, depending upon shipments. At
December 31, 1997 and December 31, 1998, the Company's contingent
liability was approximately $22,130,000 and $25, 530,000 respectively. The
risk of loss under these agreements is spread over numerous dealers and
financing institutions and is further reduced by the resale value of any
motorhomes that may be repurchased. To date, the Company's losses under
these repurchase agreements have been minimal.
Advertising and Promotion
The Company advertises its motorhomes to consumers in recreational
vehicle magazines and to dealers in trade publications and also uses
point-of-purchase promotional materials. Its promotional activities
generally consist of participation at three major recreational vehicles shows
(California RV Show in Pomona, California Louisville Show in Kentucky and
Tampa Super Show in Florida) held during the year, as well as local
recreational vehicles shows held by its dealers. The company also advertises
its product on the World Wide Web under the following site:
http://www.rexhall. com. E-Mail responses from consumers shows great promise
for this advertising media.
Seasonality and Backlog
The recreational vehicle business generally has been seasonal with most
sales occurring in the months of February through October, with November
through January sales generally being considerably slower.
Historically, the Company does not maintain a significant inventory of
finished motorhomes. Production is based on dealer orders and shipments
which usually occur within four to eight weeks of the receipt of an order.
At December 31, 1996, 1997 and 1998, the Company's backlog of dealer orders
were $3,688,000, $3,864,000 and $15,232,000 respectively. The Company
believes that backlog is not necessarily a reliable indication of future
<PAGE>
sales because dealer orders not only fluctuate but, by industry customs, are
cancelable without penalty and because motorhomes have a relatively short
manufacturing cycle.
Product Warranty
The Company currently provides retail purchasers of its motorhomes with
a limited warranty against defects in materials and workmanship for 12 months
or 12,000 miles measured from date of purchase, or upon the transfer of the
vehicle by the original owner, whichever occurs first. The Company's
warranty excludes certain specified components, including chassis, engines
and power train, which are warranted separately by the suppliers. Warranty
expense was $959,000, $1,753,000 and $1,041,000 for the years ended December
31, 1996, 1997, and 1998 respectively. The fluctuations in warranty cost
were primarily attributed to units produced at the Indiana facility. In most
cases, warranty work is performed by a member of the Company's dealer
network. The Company owns two service facilities; one in Lancaster,
California and the other in Elkhart, Indiana, which as of December 31, 1998,
the Company has decided to sell. The Company is now using the Lancaster
facility to accomplish warranty repairs which normally would have been
performed by one of its dealers and effective January 1999, the Company has
subcontracted with a Pennsylvania dealer to do service and warranty work in
the eastern states. Management believes that the Service Center allows the
Company the benefit of providing better customer service and satisfaction.
Competition and Other Business Risks
Competition in the manufacture and sale of motorhomes and other
recreational vehicles is intense. The Company has been manufacturing Class A
motorhomes for thirteen years and competes with many manufacturers (such as
Fleetwood, National RV, Damon, Thor Industries, and Coachman), several having
multiple product lines of Class A motorhomes and other recreational vehicles
and most being larger and having substantially greater financial and other
resources than the Company. The Company sells motorhomes in most of the 48
states. Additionally, the Company sells to dealers in Canada. The Company
believes that the quality, design and value offered by its motorhomes to be
appealing to the consumer market.
The Company, like others in the recreational vehicle industry, is
dependent upon the availability of chassis from both Ford and GM, now
Workhorse Chassis, LLC and upon terms of financing to dealers and retail
purchasers. Substantial increases in interest rates, the tightening of
credit, a general economic downturn or other factors negatively affecting the
amount of consumer's disposable income could have a material adverse impact
on the Company's business.
Shortage of gasoline has in the past had a materially adverse effect on
the recreational vehicle industry as a whole and could have a materially
adverse effect on the Company's business in the future. In addition, a
substantial increase in the price of gasoline could also adversely affect the
sale of the Company's motorhomes.
Forward-Looking Statements & Risks:
Our report contains 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 materials 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
<PAGE>
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.
Regulation
The Company is subject to the provisions of the National Traffic and
Motor Vehicle Safety Act and the safety standards for recreational vehicles
and components which have been promulgated thereunder by the Department of
Transportation. The regulations under that legislation permit the National
Highway Traffic Safety Administration to require a manufacturer to remedy
vehicles containing "defects related to motor vehicle safety" or vehicles
that fail to conform to all applicable Federal Motor Vehicles Safety
Standards. The National Traffic and Motor Vehicles Safety Act also provides
for the recall and repair of recreational vehicles that contain certain
hazards or defects.
The Company is subject to the provisions of Transport Canada for
vehicles exported to Canada. The regulations under that legislation is
similar in nature and design to its American counterparts.
The Company relies on certifications obtained from chassis suppliers
with respect to compliance of the Company's vehicles with applicable emission
control standards and load bearing capacity. The Company believes that its
facilities and products comply in all material respects with applicable
environmental regulations and standards.
The Company is a member of the RVIA (Recreational Vehicle Industry
Association). This association has promulgated stringent standards for
health and safety in connection with the manufacture of recreational
vehicles. Each of the units manufactured by the Company has a RVIA seal
placed upon it to certify that such standards have been met. The Company's
facility is periodically inspected by government agencies and the RVIA to
ensure that the Company's motorhomes comply with applicable governmental and
industry standards.
Patents and Trademarks
The Company claims "Aerbus", "Rexair", "RoseAir", "Vision", "Anthem",
and "American Clipper" as trademarks but believes its business is not
dependent on these names or any other marketing device. The Company does not
have any patents or licenses in the conduct of its business.
Employees
At December 31, 1998, the Company had a total of 454 employees (453 in
California and 1 in Indiana). None of the Company's employees is represented
by a labor union. The Company considers its relations with its employees to
be good.
Item 2. Properties
In December 1995, the Company completed construction and moved into a
87,000 square foot manufacturing facility in Lancaster, California which
serves as both a manufacturing facility and the Company's Executive Offices.
The facility was designed by management to insure efficiency and to
specifically position the company with the opportunity to meet increased
production demands based on orders that have continued to rise on a yearly
basis. In September 1996, expansion construction began at the Lancaster
site.
<PAGE>
The new addition, completed in the fourth quarter of 1997, provided an
additional 19,320 square feet of production space. The Lancaster
manufacturing plant is debt free with no mortgages on the facility.
The Company owns a 97,000 square foot production 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 decided to cease
production at the Elkhart facility. However, the company retained its
wholesale motorhome sales, warranty and service operations at the location
throughout 1998. As a result of this decision to restructure its operations,
the Company recorded a charge to operations of $1,042,000 in 1997. See
footnote 2 to the financial statements. As of January 1999, the Company has
contracted out the warranty and service operation to a Pennsylvania dealer.
The Company intends to sell the Indiana facilities.
In September 1995, the Company purchased a 4.5 acre site located in
Lancaster, California to serve as the Company's RV Service Center. The site
contains a 40,000 square foot facility and was purchased from the City of
Lancaster's Redevelopment Agency for $980,000. At December 31, 1998, the
Company was indebted to the City of Lancaster Redevelopment Agency an amount
of $797,000 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 $911,000 at December 31, 1998. The Company
leased a portion of the facility to Lancaster RV from December 1997 to
present. Lancaster RV is a major retail dealer.
In September 1996, the Company purchased a 4,500 square foot facility
located one mile east of the Elkhart Plant. The facility has 1,500 sq. ft.
of office space and a 3,500 sq. ft. warehouse area. The facility is
currently leased to S & S RV as a retail RV Center.
The Company believes that its facilities are adequate to meet its
foreseeable needs.
Item 3. Legal Proceedings
The class action lawsuit Masterjohn et al vs. Rexhall, et al,
Case No. 752188 filed in the Superior Court of Orange County, California has
been settled on October 2, 1998.
Under the Settlement Agreement Rexhall paid $825,000 in cash, and issued
one coupon per vehicle owned by members of the class for $1,250 towards the
purchase of a new Rexhall vehicle or $200 toward service, parts and labor.
Coupons are redeemable at Rexhall's Lancaster, California Service Center, as
well as other designated dealerships geographically dispersed. Purchasers of
Indiana manufactured vehicles will be added as members of the settlement
class. The total number of vehicles owned by class members is estimated
at approximately 5,000. During 1997 the Company recorded a charge and
established a liability of $1,590,000 related to this settlement. At
December 31, 1998, the remaining settlement liability is $765,000.
The Company was sued by Bruce Elworthy and Anne B. Marshall (Elworthy
and Marshall) in June 1995 in the Superior Court of the County of Los
Angeles. The complaint alleges 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. The Company believes that it has meritorious defenses against the
Elworthy and Marshall claim and intends to vigorously defend itself against
the claim. The Company's position is that this personal injury case is
without merit. Although the Company believes the final disposition of this
matter will not have a material adverse effect on the Company's financial
position or result of operations, if Elworthy and Marshall were to prevail
on its liability claims, a judgment in a material amount could be awarded
against the Company.
<PAGE>
Other than the above referenced cases, the Company is a defendant in
other various legal proceedings resulting from the normal course of business.
In the opinion of company management, the resolution of such matter will not
have a material effect on its financial statements or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the vote of security holders during the
fourth quarter of 1998.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
Market Information.
The Company's Common Stock has traded in the over-the-counter market
since June 22, 1989 and sales and other information are reported in the
NASDAQ National Market System. The Company's NASDAQ symbol is "REXL". The
following table sets forth the range of high and low closing sale prices of a
share of the Company's Common Stock in the over-the-counter market for each
quarter since the first quarter of 1996 according to NASDAQ:
1996 High Low
First Quarter $ 7.00 $ 4.88
Second Quarter 8.13 6.25
Third Quarter 11.00 6.00
Fourth Quarter 10.00 6.50
1997 High Low
First Quarter $ 6.88 $ 5.50
Second Quarter 6.25 4.75
Third Quarter 6.00 5.25
Fourth Quarter 5.75 4.63
1998 High Low
First Quarter $ 5.19 4.53
Second Quarter 7.63 4.44
Third Quarter 9.38 5.13
Fourth Quarter 9.00 4.75
Holders
At March 31, 1999, the Company had 67 shareholders of record.
Item 6. Selected Financial Data.
The following selected financial information of the Company should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto of the Company included elsewhere herein. The following table
presents selected historical financial data of the Company for each of the
five fiscal years in the period from December 31, 1994 through December 31,
1998. The financial information as of and for each of the five years in the
period ended December 31, 1998 were derived from audited financial statements
of the Company.
<PAGE>
Statement of Operations Data:
(in thousands, except per-share date)
Year Ended December 31,
1994 1995 1996 1997 1998
Net Revenues $ 50,090 $ 60,709 $ 64,959 $ 63,012 $ 71,454
Cost of Goods Sold 43,184 51,981 56,167 59,921 59,314
Gross Profit 6,906 8,728 8,792 7,091 12,140
Selling, General, and Administrative
Expenses 3,841 5,281 6,426 7,286 6,749
Restructuring Charge --- --- --- 1,042 (282)
Income (Loss) from Operations 3,065 3,447 2,366 (1,237) 5,673
Interest Income 181 69 29 3 157
Interest Expense (48) (136) (171) (134) (101)
Legal Settlement --- --- --- (1,590) ---
Other Income(Expense) 24 14 (93) 46 135
Income (Loss) Before Income
Taxes 3,222 3,394 2,131 (2,912) 5,864
Provision for Income Taxes
(Benefit) 1,300 1,360 847 (1,077) 2,474
Net Income (Loss) $ 1,922 $ 2,034 $ 1,284 ($1,835) $ 3,390
Net Income (Loss) Per Share
- Basic (1) $ .66 $ .69 $ .44 ($ .64) $ 1.14
Net Income (Loss) per
Share - Diluted (1) $ .64 $ .68 $ .43 ($ .64) $ 1.13
Weighted Average Shares
Outstanding - Basic (1) 2,893,000 2,934,000 2,948,000 2,882,000 2,968,000
Weighted Average Shares
Outstanding- Diluted (1) 2,993,000 3,004,000 2,998,000 2,882,000 2,990,000
Balance Sheet Data:
(in thousands)
As of December 31,
1994 1995 1996 1997 1998
Working Capital $ 8,858 $ 9,269 $ 9,519 $ 7,356 $10,805
Total Assets 15,991 19,975 23,496 23,178 28,471
Long Term Debt
less Current Portion --- 852 826 797 767
Shareholders Equity $10,376 $12,225 $13,581 $11,480 $14,992
(1) Retroactively adjusted to give effect to a 5% stock dividend of 142,000
shares in 1998.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth for each of the three years indicated the
percentage of revenues represented by certain items on the Company's
Statements of Operations:
Percentage of Net Sales
Year Ended December 31,
1996 1997 1998
Net Revenues 100.0% 100.0% 100.0%
Costs of goods sold 86.5 88.7 83.0
Gross profit 13.5 11.3 17.0
Selling, general, and administrative expenses 9.9 11.6 9.4
Restructuring charge --- 1.7 (0.3)
Income(loss) from operations 3.6 (2.0) 7.9
Legal Settlement --- (2.5) ---
Other Income(expense), net (0.3) (0.1) 0.3
Income(loss) before income taxes (benefit) 3.3 (4.6) 8.2
Provision for income taxes (benefit) 1.3 (1.7) 3.5
Net income(loss) 2.0% (2.9%) 4.7%
Management Discussion and Analysis
Overview
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein. As is
generally the case in the recreational vehicle industry, various factors
can influence sales. These factors 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.
Prior to 1998, the Company operated two manufacturing divisions,
Lancaster, California and Elkhart, Indiana. During 1997, the Company's Board
of directors adopted a formal plan of restructuring whereby the Company
implemented a plan to cease production operations at its Elkhart, Indiana
manufacturing plant and potentially sell all or part of the real estate
the facility occupied. This decision was based upon the Company's evaluation
of costs and the product quality of the recreational vehicles being produced
in Elkhart. Concurrent with this decision, the Company completed an
expansion of its Lancaster facility to accommodate the expected rise in
production. The Company operated the service center in Elkhart, Indiana
during 1998 but in January sub-contracted its service and warranty in the
eastern half of the United States. The Company has decided to sell the
Indiana facility.
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 was 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
reported the impact from these transactions as charges in the accompanying
statement of operations aggregating $1,042,000 for the restructuring and
$1,590,000 for the lawsuit settlement during 1997.
<PAGE>
Result of Operations
Comparison of the Year Ended December 31, 1998 to Year Ended December
31, 1997
Net revenues for the year ended December 31, 1998, were $71.4 million,
compared to $63.0 million for 1997, an increase of $8.4 million or 13.3%.
The number of units shipped in 1998 increased 40 to 1,122 in 1998 from 1,082
in 1997, an increase of 3.7%. This increase in units shipped was lower than
the overall increase in sales as a result of a change in the sale mix.
Double-slide units introduced in the fourth quarter of 1997 increased to 28%
of sales in 1998. Conversely fewer lower margin single slide and non-slide
units were sold in 1998. The average net selling price increased
approximately 9% during the period.
Gross profit for the year ended December 31, 1998 increased to $12.1
million from $7.1 million for 1997, an increase of $5.0 million or 70%. The
gross margin for 1998 was 17.0% as compared to 11.3% for 1997. The increase
in gross profit is due to increased operating efficiencies and improved
quality at the California plant primarily serving our major market in the
Western United States and higher margins associated with the increased sales
of units equipped with higher priced options.
Selling, general and administrative expenses (SG&A) for the year ended
December 31, 1998 were $6.7 million, compared to $7.3 million for 1997, a
decrease of $.6 million or 7%. The decrease in SG&A is due principally to
decreases in warranty expense as compared to 1997. The decrease in selling,
general and administrative expenses as a percentage of sale from 11.5% in
1997 to 9.4% in 1998 results from the increased sales level and efficiencies
gained by operating one plant at the Corporate Headquarters.
The Company's effective income tax rate was 43.5% for the year ended
December 31, 1998 as compared with 37.0% for 1997. Basic and diluted net
income per share was $1.14 and $1.13 respectively, for the year ended
December 31, 1998, as compared to basic and diluted net loss per share of
($.64) sales and ($.64), respectively, in 1997. Exclusive of the impacts of
the restructuring and legal settlement non-recurring items during 1997 and
1998, net loss would have been ($0.2) million for the year ended December
31, 1997 as compared to net income of $3.2 million for 1998. Basic and
diluted loss per share excluding the impact of the aforementioned
non-recurring items during 1997 and 1998 would have been $0.06 for the year
ended December 31, 1997 as compared to $1.08 and $1.07 respectively, for
1998. The increase in basic and diluted net income per share was due to
increased sales margins and decreased SG&A costs such as warranty.
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 an increase in sales incentive payments, legal expenses and warranty
expense as compared to 1996. The percentage of SG&A to revenues was 11.6%
for 1997 as compared to 9.9% for 1996. The increase is due, in part, to
fixed costs of the Elkhart facility being spread over a smaller population of
sales during 1997 as compared to 1996.
During 1997, the Company's Board of Directors approved a restructuring
of the Company's operations. The restructuring plan provided for changes in
operational and production strategies. In implementing these plans, the
Company decided to cease manufacturing operations at its Elkhart, Indiana
plant. The closure of this facility was done in conjunction with the
recently completed expansion of its Lancaster, California facility to
accommodate the anticipated increased production. The Company believes that
the national market can be adequately served from the California facility and
that any slight increase in freight charges will be more than offset by the
reduced manufacturing costs. As a result of this strategic change, the
Company wrote down or wrote off entirely certain of its property and
equipment and inventories located at the Elkhart facility aggregating
$937,000. In addition, the Company recorded additional charges for
severance costs and other expected costs associated with the facility closure
aggregating $105,000. The total charge of $1,042,000 is recorded as a
Restructuring charge in the accompanying statements of operations.
<PAGE>
During 1997, the Company reached a tentative settlement, subject to
court approval, of its class action lawsuit. Under the settlement agreement,
the Company will pay $825,000 in cash, and issue one coupon per vehicle owned
by the members of the class for $1,250 towards the purchase of a new Rexhall
vehicle or $200 towards service, parts and labor. Coupons would be
redeemable at the Company's two service centers and at three dealerships
which are suitably dispersed around the country. The Company has accrued for
the estimated costs of the redemption of these coupons and the cash payment,
aggregating $1,590,000 and has recorded this as Lawsuit settlement in the
accompanying statements of operations.
The net loss before income tax benefit for the year ended December 31,
1997 was $2.9 million, as compared with net income before tax of $2.1 million
for 1996, principally due the aforementioned non-recurring charges. Without
these non-recurring charges,loss before taxes would have been $0.3 million
for the year ended December 31, 1997 as compared to net income of $2.1
million for 1996. The decrease in this adjusted difference is due
principally to production inefficiencies in the Elkhart facility resulting in
reduced gross margins, increased legal, warranty and other administrative
costs in the Elkhart facility, and increased dealer rebates and sales
incentive payments.
The Company's effective income tax rate was 37.0% (benefit) for the year
ended December 31, 1997 as compared with 39.7% for 1996. The income tax
benefit in 1997 results from the anticipated refund of prior year income
taxes from the carryback of the 1997 taxable net loss. Basic and diluted
net loss per share was ($0.64) for the year ended December 31, 1997, as
compared to basic and diluted income per share of $0.44 and $0.43,
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 $0.44 and $0.43 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.
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".
<PAGE>
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,
1998, the Company had working capital of $10,805,000, compared to $7,356,000
at December 31, 1997 The $3,449,000 increase in working capital primarily
resulted from a $3,335,000 increase in inventories and a $4,206,000 increase
in cash, partially offset by a $1,846,000 increase in accounts payable and a
$1,311,000 decrease in current deferred tax assets. The increase in cash and
inventory relates to 1998 income and increase in back orders at December
1998, as compared with the same period in 1997.
As of December 31, 1998 the Company has a $3,500,000 line of credit with
Bank of America which can be used for working capital purposes. Under this
line of credit, $365,000 has been set aside as an irrevocable standby letter
of credit for the Company to meet the requirements for self-insurance
established by the Department of Industrial Relations which regulates
workmen's compensation insurance in California. Since the Company purchased
workmen's compensation insurance covering their employees at their Elkhart
plant, a similar letter is not required for this facility. At December 31,
1998, 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 December 31, 1998.
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 December 31, 1998).
All borrowings are secured by the Company's assets. The outstanding balances
included in accounts payable at December 31, 1997 and 1998 were $453,000 and
$644,000 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% (8.75% at December 31,
1998). All borrowings are secured by the Company's assets. The outstanding
balances included in accounts payable at December 31, 1997 and 1998 were
$2,162,000 and $2,986,000 respectively. FMCC has subsequently increased the
line of credit to $4,000,000 as of March 13, 1999, in order to accommodate
increased production demands.
.
Capital expenditures during 1998 were $482,000. Management anticipates
a comparable level of capital expenditures in 1999. Cash flows from
financing activities consisted primarily of proceeds of $199,000 from the
exercise of employee stock options, offset by repurchases of common stock on
the open market of $63,000.
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.
As mentioned previously during 1997, 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, the Company
has decided to sell the property. 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, 1998.
Forward Looking Statements
Our report contains 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 materials 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.
New Accounting 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 ofcomprehensive 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 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. Management has
determined that the disclosure requirements from this statement does
not impact the financial statements of the Company as there is no difference
between net income and comprehensive income for any of the years presented.
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. The Company
operates in only one business segment, the manufacture and distribution of
f recreational vehicles. Accordingly, SFAS 131 does not have an impact on
the Company's financial reporting.
In February 1998, FASB issued Statement of Financial Accounting Standard
No. 132, Employers' Disclosures about Pensions and other Post Retirement
Benefits. SFAS 132 established additional standards for the disclosure of
pensions and post retirement benefits but does not change the method of
accounting for such plans. SFAS 132 is effective for fiscal years beginning
after December 15, 1997. Management has determined that the disclosure
requirements from these statements does not impact the financial statements
of the Company.
In June 1999, 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.
<PAGE>
Item 8. Financial Statements
Independent Auditor's Report
The Board of Directors
Rexhall Industries, Inc.
We have audited the accompanying balance sheets of Rexhall Industries, Inc.
as of December 31, 1998 and 1997, and the related statements of operations,
shareholders' equity, and cash flows for each of the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rexhall Industries, Inc. as
of December 31, 1998 and 1997, and the result of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Los Angeles, California
March 12, 1999
<PAGE>
AUDITORS' REPORT
REXHALL INDUSTRIES, INC.:
We have audited the statements of operations, shareholders' equity, and
cash flows of Rexhall Industries, Inc. for the year ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 results of Rexhall Industries, Inc.
operations and its cash flows for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
April 11, 1997
<PAGE>
REXHALL INDUSTRIES, INC.
BALANCE SHEETS
December 31, 1997 and 1998
ASSETS 1997 1998
CURRENT ASSETS
Cash $ 811,000 $ 5,017,000
Accounts receivables, less allowance
for doubtful accounts $106,000 in 1997,
and $150,000 in 1998 5,378,000 4,631,000
Inventories 9,439,000 12,774,000
Income tax receivable 337,000 ---
Deferred income taxes (note 7) 2,197,000 956,000
Other current assets 59,000 33,000
Total Current Assets 18,221,000 23,411,000
Property and equipment at cost net of
accumulated depreciation (note 3 and 6) 4,957,000 4,519,000
Property held for sale (note 13) --- 541,000
TOTAL ASSETS $23,178,000 $28,471,000
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (note 4) $ 6,111,000 $ 7,958,000
Restructuring reserve (note 2) 605,000 ---
Warranty allowance 937,000 966,000
Accrued Legal Settlement (note 9) 1,590,000 765,000
Accrued Legal 348,000 829,000
Dealer Incentives 608,000 830,000
Other accrued liabilities 467,000 557,000
Accrued Compensation and Benefits 172,000 672,000
Current portion of long-term debt (note 6) 27,000 29,000
TOTAL CURRENT LIABILITIES 10,865,000 12,606,000
Deferred income taxes (note 7) 36,000 106,000
Long-Term debt (note 6) 797,000 767,000
TOTAL LIABILITIES 11,698,000 13,479,000
SHAREHOLDERS' EQUITY
Preferred Stock - no par value
Authorized, 1,000,000 shares;
No shares outstanding at December 31, 1997
and December 31, 1998 --- ---
Common stock-no par value,
Authorized, 10,000,000 shares,
issued and outstanding;
2,714,000 at December 31, 1997 and
3,010,000 at December 31, 1998 (Note 11) 6,267,000 6,788,000
Loan receivable from exercise of options (Note 5) --- (399,000)
Retained earnings 5,213,000 8,603,000
TOTAL SHAREHOLDERS' EQUITY 11,480,000 14,992,000
Commitments and Contingencies (note 8)
TOTAL LIABILITIES AND SHAREHOLDER EQUITY $23,178,000 $28,471,000
(1) Retroactivity adjusted to give effect to 5% stock dividend of $142,000
shares in 1998.
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 and 1998
1996 1997 1998
Net Revenues $64,959,000 $63,012,000 $71,454,000
Cost of Sales 56,167,000 55,921,000 59,314,000
Gross Profit 8,792,000 7,091,000 12,140,000
Operating Expenses:
Selling, General and
Administrative Expenses 6,426,000 7,286,000 6,749,000
Restructuring Charge --- 1,042,000 (282,000)
Income (Loss) from Operations 2,366,000 (1,237,000) 5,673,000
Other Income (Expense):
Interest Income 29,000 3,000 157,000
Interest Expense (171,000) (134,000) (101,000)
Legal Settlement --- (1,590,000) ---
Other Income (Expense) (93,000) 46,000 135,000
Income (Loss) Before Income Taxes 2,131,000 (2,912,000) 5,864,000
Income Tax Expense (Benefit) 847,000 (1,077,000) 2,474,000
Net Income (Loss) $1,284,000 ($1,835,000) $ 3,390,000
Basic Net Income (Loss) Per Share $ .44 $ (.64) $ 1.14
Diluted Net Income (Loss)
Per Share $ .43 $ (.64) $ 1.13
Weighted Average Shares
Outstanding - Basic 2,948,000 2,882,000 2,968,000
Weighted Average Shares
Outstanding - Diluted 2,998,000 2,882,000 2,990,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 and 1998
COMMON STOCK LOAN RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
BALANCE,
January 1, 1996 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 10) --- 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 and
Retirement 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
Repurchase and
Retirement of Stock (7,000) (63,000) --- --- (63,000)
Exercise of Stock
options 161,000 584,000 --- --- 584,000
5% Stock Dividend 142,000 --- --- --- ---
Loans receivable
from exercise of
stock options --- --- (399,000) --- (399,000)
Net Income --- --- --- 3,390,000 3,390,000
BALANCE,
December 31, 1998 3,010,000 $6,788,000 $(399,000) $8,603,000 $14,992,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1996 1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income(loss) $ 1,284,000 ($1,835,000) $3,390,000
Adjustments to reconcile
net income (loss)
to net cash provided by
Operating Activities:
Depreciation and amortization 348,000 216,000 344,000
Restructuring charges - non-cash
effect --- 437,000 ---
Provision for deferred income taxes (155,000) (1,726,000) 1,311,000
Options issued to consultant 85,000 --- ---
(Increase) decrease in:
Accounts receivable 1,855,000 (2,170,000) 747,000
Inventories (5,142,000) 4,056,000 (3,335,000)
Income tax receivable (271,000) (66,000) 337,000
Increase(decrease) in:
Accounts payable 1,844,000 (1,480,000) 1,846,000
Restructuring Reserve --- 605,000 (605,000)
Warranty allowance 44,000 582,000 29,000
Accrued legal settlement --- 1,590,000 (825,000)
Accrued legal --- --- 481,000
Dealer incentives 271,000 269,000 221,000
Other assets and liabilities 315,000 312,000 639,000
Net cash provided by operating
activities 207,000 790,000 4,580,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,426,000) (427,000) (482,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (24,000) (28,000) (28,000)
Proceeds from exercise of stock options 33,000 --- 199,000
Repurchase and retirement of stock ( 46,000) (266,000) (63,000)
Net cash provided by (used in)
financing activities ( 37,000) (294,000) 108,000
NET (DECREASE) INCREASE IN CASH (1,256,000) 69,000 4,206,000
BEGINNING CASH BALANCE 1,998,000 742,000 811,000
ENDING CASH BALANCE $ 742,000 $ 811,000 $5,017,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Income taxes paid during the year $ 918,000 $ 696,000 $1,090,000
Interest paid during the year $ 273,000 $ 259,000 $ 101,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Loans to related parties for
stock option exercise $ --- $ --- $ 399,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities - Rexhall Industries, Inc. (the "Company") designs,
manufactures and sells Class A motorhomes. Class A motorhomes are
self-contained and self-powered recreational vehicles used primarily in
conjunction with leisure travel and outdoor activities.
Concentration of Credit Risk - Sales are usually made to dealers over a wide
geographic area on either a C.O.D. basis or on terms requiring payment within
ten days or less of the dealer's receipt of the unit. Most dealers have floor
plan financing arrangements with banks or other financing institutions under
which the lender advances all, or substantially all, of the purchase price of
the motorhome. The loan is collateralized by a lien on the purchased
motorhome. As is customary in the industry, the Company has entered into
repurchase agreements with these lenders. In general, the repurchase
agreements provide that in the event of default by the dealer on its
agreement to the lending institution, the Company will repurchase the
motorhome so financed.
The Company has recorded an allowance for doubtful accounts to cover the
difference between recorded revenues and collections from customers. The
allowance and provision for bad debts are adjusted periodically based upon
the Company's evaluation of historical collection experiences, industry
trends and other relevant factors.
Inventories - Inventories are stated at the lower of cost or market value,
determined using the first-in, first-out basis, or market. Costs include
material, labor and applicable manufacturing overhead. Inventories consist
of the following at December 31, 1997 and 1998:
1997 1998
Raw materials $4,659,000 $ 7,593,000
Work-in-Progress 2,124,000 1,522,000
Finished Goods 2,656,000 3,659,000
Total $9,439,000 $12,774,000
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.
Property held for sale is stated at the lower of cost or estimated net
realizable value and includes certain property and equipment no longer used
in the Company's operation.
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.
Warranty Reserve Policy - The Company provides retail purchasers of its
motorhomes with a limited warranty against defects in materials and
workmanship for 12 months or 12,000 miles measured from date of purchase, or
upon the transfer of the vehicle by the original owner, whichever occurs
first. The Company's warranty excludes certain specified components,
including chassis, engines and power train, which are warranted separately
by the suppliers. The Company estimates warranty reserves required by
applying historical experience with regard to probabilities of failure and
cost to product sales covered by warranty terms. Warranty expense was
$959,000, $1,753,000 and $1,041,000 for the years ended December 31,
1996, 1997, and 1998, respectively.
<PAGE>
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 carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
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 anti-dilutive.
Use of Estimates -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.
The Company will continue to measure compensation costs under Accounting
Principles Board 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 - 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 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. Management has determined that the
disclosure requirements from these statements does not impact the financial
statements of the Company as there is no difference between net income and
comprehensive income for the years presented.
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
<PAGE>
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 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 does not have an impact on the Company's
financial reporting.
In February 1998, FASB issued Statement of Financial Accounting Standard
No. 132, Employers' Disclosures about Pensions and other Post Retirement
Benefits. SFAS 132 established additional standards for the disclosure of
pensions and post retirement benefits but does not change the method of
accounting for such plans. SFAS 132 is effective for fiscal years beginning
after December 15, 1997. Management has determined that the disclosure
requirements from these statements does not impact the financial statements
of the Company.
In June 1999, 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.
Fair Values of Financial Instruments - The following methods and assumptions
were used to estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
Cash and cash equivalents, trade and other receivables, trade accounts
payable and accrued expenses: The carrying amounts approximate the fair
values of these instruments due to their short-term nature.
Reclassifications - Certain reclassifications have been made to the 1996 and
1997 financial statements to conform to the 1998 presentation.
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 the
operations, and production strategies. In implementing these plans, the
Company decided to cease manufacturing operations at 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
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 plant 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 December 31, 1998, the Company had no
remaining reserve relating to this restructuring.
Restructuring reserve at 12/31/97 $605,000
Payments and asset write-downs through December 31, 1998 605,000
Future cash outlay and charges $ 0
<PAGE>
The Company owns the real estate for the Elkhart facility. 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, 1998.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997
and 1998:
Useful Lives
(In years) 1997 1998
Building and Land 5, 31.5 4,543,000 4,094,000
Furniture, fixtures and equipment 2,7 1,227,000 1,332,000
Autos and trucks 5,7 155,000 309,000
5,925,000 5,735,000
Less accumulated depreciation
and amortization (968,000) (1,216,000)
Property and equipment, net $4,957,000 $4,519,000
4. LINES OF CREDIT
The Company has available a $3,500,000 revolving line of credit with a bank
expiring on June 1, 1999. Under this line of credit, $365,000 has been set
aside as an irrevocable standby letter of credit. The reference rate is the
rate of interest publicly announced from time to time by the bank in San
Francisco. At December 31, 1998, no amounts were outstanding under this line
and $365,000 of standby letters of credit have been issued. All borrowings
are collateralized by the Company's assets.
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 December 31, 1998). All borrowings
are secured by the Company's assets. The outstanding balances included in
accounts payable at December 31, 1997 and 1998 were $453,000 and $644,000
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% (8.75% at December 31,
1998). All borrowings are secured by the Company's assets. The outstanding
balances included in accounts payable at December 31, 1997 and 1998 were
$2,162,000 and $2,986,000 respectively. FMCC has subsequently increased the
line of credit to $4,000,000 as of March 13, 1999, in order to accommodate
increased production demands.
5. LOANS TO RELATED PARTIES:
From time to time the Company makes loans to certain officers and key
employees related to the exercise of stock options. During 1998, the Company
advanced $385,000 to key employees under the Company's Incentive and
Non-Statutory Stock Option Plan (The Plan). These loans are full recourse
loans secured by the shares of common stock issued upon such exercise. The
notes bear interest at a rate as defined by Regulation 1.1274-4 of Internal
Revenue Code of 1986, as amended, subject to annual adjustments as approved
by the Company's Compensation Committee (4.47% at December 31, 1998). Loans
extended for the exercise of incentive stock options are netted against
equity. 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 year ended December 31, 1998.
<PAGE>
6. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998
consists of the following: 1997 1998
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.
The note is collateralized by land and
building with a net book value
of approximately $911,000 at December 31, 1998. $824,000 $796,000
Less: Current Portion 27,000 29,000
Long-Term debt $797,000 $767,000
Future annual minimum principal payments due on long-term debt (including
current portion) as of 12/31/98 are as follows:
Year Ending December 31,
1999 29,000
2000 31,000
2001 32,000
2002 34,000
2003 37,000
Thereafter 633,000
$796,000
7. INCOME TAXES
The components of income tax expense (benefit) are as follows:
Years Ended December 31,
1996 1997 1998
Current:
Federal $ 780,000 $ 526,000 $1,018,000
State 222,000 123,000 145,000
1,002,000 649,000 1,163,000
Deferred:
Federal (124,000) (1,347,000) 950,000
State (31,000) (379,000) 361,000
(155,000) (1,726,000) 1,311,000
$ 847,000 ($1,077,000) $2,474,000
<PAGE>
The components of deferred tax assets (liabilities) at December 31, 1997
and 1998 are as follows:
1997 1998
FEDERAL STATE FEDERAL STATE
Current:
Allowance for bad debts $ 33,000 $ 9,000 $ 51,000 $ 9,000
Inventory reserves 124,000 34,000 --- ---
Warranty accrual 292,000 81,000 190,000 32,000
Dealer incentives 179,000 49,000 87,000 14,000
Uniform capitalization 120,000 33,000 21,000 4,000
Reserve for self insurance 135,000 37,000 87,000 14,000
Legal reserves 603,000 167,000 205,000 34,000
Accrued restructuring
liability 188,000 52,000 --- ---
Other accrued liabilities 15,000 4,000 39,000 6,000
State tax 42,000 --- 163,000 ---
1,731,000 466,000 843,000 113,000
Non Current:
Depreciation 29,000 7,000 (91,000) (15,000)
Net deferred tax assets $1,702,000 $ 459,000 $ 752,000 $ 98,000
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:
Years Ended
December 31,
1996 1997 1998
Income (loss) before income tax $2,131,000 ($2,912,000) $5,864,000
Statutory federal tax rate (benefit) 35% 34% 34%
Expected tax expense (benefit) 746,000 (990,000) 1,994,000
State taxes net of federal effect 148,000 (169,000) 334,000
Permanent differences 20,000 6,000 6,000
IRS audit resolution, primarily
State Tax deduction --- 101,000 ---
Write off of income tax receivable --- --- 140,000
Other adjustments (67,000) ( 5,000) ---
Provision for income taxes (benefit) $ 847,000 ($1,077,000) $2,474,000
<PAGE>
8. 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 1997 and 1998 the Company repurchased
approximately $3,145,000 and $832,000 respectively, of motorhomes under these
agreements. At December 31, 1997 and 1998, approximately $22,130,000 and
$25,530,000 respectively, of dealer inventory is covered by repurchase
agreements. Dealers do not have the contractual right to return motorhomes.
Litigation - The Company was sued by Bruce Elworthy and Anne B. Marshall
(Elworthy and Marshall) in June 1995 in the Superior Court of the County of
Los Angeles. The complaint alleges 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. The Company believes that it has meritorious defenses against the
Elworthy and Marshall claim and intends to vigorously defend itself against
the claim. Although the Company believes the final disposition of this
matter will not have a material adverse effect on the Company's financial
position or result of operations, if Elworthy and Marshal were to prevail on
its liability claims, a judgment in a material amount could be awarded
against the Company.
The Company is a party to various claims, complaints and other legal actions
that have arisen in the ordinary course of business. 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 9, legal settlement.
9. 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 on October 2, 1998. Under the agreement
Rexhall paid $825,000 in cash, and issued one coupon per vehicle owned by
members of the class of $1,250 towards purchase of a new Rexhall vehicle or
$200 toward service, parts and labor. Coupons are redeemable at Rexhall's
Lancaster, California Service Center, as well as other designated dealerships
geographically dispersed. The total number of vehicles owned by class
members is estimated at approximately 5,000. The Company recorded a charge
of $1,590,000 in 1997 relating to this settlement. The December 31, 1998
accrual balance of $765,000 is for the remaining legal settlement costs
associated with the coupons still outstanding.
10. STOCK INCENTIVE PLAN
The Company has granted stock options under its Incentive and Nonstatutory
Stock Option Plan (the "Plan"), which provides for the granting of (I)
incentive stock options to key employees, pursuant to Section 422A of the
Internal Revenue Code of 1986, and (ii) nonstatutory stock options to key
employees, directors and consultants to the Company designated by the Board
as eligible under the Plan. Under the Plan, options for up to 225,000 shares
may be granted. Options granted and outstanding under the Plan expire in
five years and become exercisable and vest in annual increments from two to
three years. The maximum term of each option may not exceed 10 years. The
following table summarizes the change in outstanding employee incentive stock
options:
Number of Range of Options Weighted Average
Options Prices per Share Exercise Price
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
Options exercised (123,000) 2.75 - 3.25 3.13
Options canceled --- --- ---
Outstanding options
at December 31, 1998 11,000 3.25 3.25
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
Number Weighted
Exercise Outstanding at Average Remaining Weighted Average
Price December 31, 1997 Contractual Life Exercise Price
$3.25 11,000 1.2 $3.25
Shares Exercisable Weighted Average
at December 31, 1998 Exercise Price
11,000 $3.25
All stock options under the Plan are granted at the fair market value of the
Company's common stock at the grant date. No options were granted to
employees during 1996 and 1997 or 1998. 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 1996, 1997 or 1998.
No non-statutory stock options were granted under the stock plan during 1997
or 1998. 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 determine using the Black-Scholes option
pricing model utilizing the following weighted average assumptions:
December 31,
1995
Dividend yield 0%
Anticipated volatility 49.47%
Risk-free interest rate 6.58%
Expected lives 4 years
The fair value was recorded as compensation expense in 1996 in the
accompanying statements of operations. These options were exercised during
1998 for $199,500.
11. COMMON STOCK
In May 1998, the Company announced a 5% stock dividend of 142,000 shares
issued on May 27, 1998 to shareholders of record as of June 19, 1998. The
impact of this stock dividend has retroactively been recorded for all
periods presented.
12. SIGNIFICANT CUSTOMERS
The Company had two major customers, RV World Productions a.k.a. RV
Supercenter and Richardson's RV (five Arizona locations and three Southern
California locations, respectively), who accounted for 14% and 11%
respectively of the Company's sales during 1998. The Company had one major
customer, RV World Productions a.k.a. Rainbow RV, who accounted for 11% of
the Company's sales during 1997. In 1996, Village RV accounted for 15.4% of
the Company's sales.
13. PROPERTIES HELD FOR SALE
Properties held for sale consist of 12 acres of land in Elkhart, Indiana. A
97,000 square foot building resides on the property which use to house the
Company's East Coast production facility. In fiscal 1997, the Company's
Board of Directors adopted a formal plan of restructuring whereby the Company
implemented a plan to cease production operations at this location. During
1998, the Company continued to operate a wholesale motorhome sales, warranty,
and service operations at this location. At December 31, 1998, the Company's
Board of Directors has approved a plan to sell the Elkhart property and
facility in its entirety. The Elkhart land and facility are debt free with
<PAGE>
no mortgages on the property. The Company has evaluated the recoverability
of this real estate and related buildings and has concluded that the
appraised value of the assets exceeds the related book value. Accordingly,
no adjustment to the carrying value of the property has been recorded.
14. INCOME (LOSS) PER SHARE
The following is a reconciliation of the basic and diluted income (loss) per
share computation for the year 1996, 1997 and 1998 (in thousands):
Year ended December 31,
1996 1997 1998
Net income (loss) used for
basic and diluted income per share $1,284 ($1,835) $3,390
Shares of Common Stock and
Common Stock equivalents:
Weighted average shares used
in basic computation 2,948 2,882 2,968
Weighted stock options 50 --- 22
Shares used in diluted computation 2,998 2,882 2,990
Income per share:
Basic $ 0.44 ($ 0.64) $ 1.14
Diluted $ 0.43 ($ 0.64) $ 1.13
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers and directors of the Company and their ages as of
March 31, 1999 are as follows:
Name Age Positions Held Director Term
William J. Rex (1) (2) 48 Chairman of the Board of 6/01/96 thru
Directors, CEO and President 5/31/99
Donald C. Hannay, Sr. 71 Vice President of Sales 6/01/96 thru
and a Director 5/31/99
Al J. Theis (1) (2) 81 Director 6/01/96 thru
5/31/99
Robert A Lopez (1) (2) 59 Director 6/01/96 thru
5/31/99
Frank A. Visco (3) 54 Director 12/17/98 thru
5/31/99
Cheryl L. Rex 46 Corporate Secretary
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Mr. Visco was appointed to the Board of Directors December 17, 1998.
Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed by and
serve at the discretion of the Board of Directors. The Company has an
"executive officer" within the meaning of the rules and regulations
promulgated by the Securities and Exchange Commission. Except for
William J. and Cheryl Rex, who are husband and wife, there are no family
relationships between any directors or officers of the Company. For their
services as members of the Board of Directors, outside directors receive
$500 for each Board meeting attended.
Mr. Rex, a founder of the Company, has served as the Company's Chief
Executive Officer from its inception as a general partnership to date. Upon
commencing operations in corporate form, Mr. Rex became the Company's
President and Chairman of the Board, offices which he continues to hold.
From March 1983 until founding the Company, Mr. Rex served in various
executive capacities for Establishment Industries, Inc., a manufacturer of
Class A and Class C motorhomes which was acquired in June 1985 by Thor
Industries, Inc., a large manufacturer of recreational vehicles. His last
position with Establishment Industries, Inc. was President. From 1970 until
March 1983, Mr. Rex was employed in various production capacities by Dolphin
Trailer Company, a manufacturer of a wide range of recreational vehicles
products. At the time he left Dolphin Trailer Company (which changed its
name to National R.V., Inc. in 1985), Mr. Rex was Plant Manager in charge of
all production and research and development.
<PAGE>
Mr. Hannay, Sr. joined the Company in December 1987 and is responsible for
product sales. He became a director in May 1989. From April 1982 until
August 1987, he was employed by Establishment Industries, Inc. as Vice
President, Sales and Marketing, where he built Establishment's dealer network
and was responsible for dealer sales. From August 1987 until joining the
Company, he was employed as General Sales Manager by Komfort Industries of
California, Inc., a recreational vehicle manufacturer located in Riverside,
California.
Mr. Theis joined the Company as its Chief Financial Officer and a member of
the Board of Directors in August 1987. In February 1991, he resigned as
Chief Financial Officer and began serving the Company as a consultant for
financial matters and in development of global sales. He continues to serve
as a member of the Board of Directors. From July 1984 until joining the
Company, Mr. Theis was self-employed as a management consultant to
recreational vehicles industry manufacturers. From February 1982 until June
1984, he was employed by Establishment Industries, Inc. as Chief Financial
Officer and Corporate Planner.
Mr. Robert A. Lopez is President of Nickerson Lumber and Plywood. Mr. Lopez
started his employment with Nickerson as an outside salesman in 1969 and in
1980 he became a partner and purchased Nickerson Lumber stock. He was
elected as President of Nickerson in 1981. His background in marketing
products is primarily to residential builders, manufactured housing and
recreational vehicle assemblers. Mr. Lopez will be a great asset to
further developments of marketing Rexhall products in both the domestic and
global markets. In his spare time, if any, Mr Lopez is captain of the San
Fernando Rangers, a non-profit organization working to use horses as
therapeutic conditioning for mentally and physically disabled children.
Mr. Frank A. Visco was elected to the Board of Directors on December 17,
1998. Mr. Frank A. Visco is owner of Frank A. Visco & Associates insurance
company. Mr. Visco began his insurance career in 1970 with New York Life
Insurance Company as a Sales Manager in their Antelope Valley office. From
1975-1984 he was the co-owner of APS Co. Inc., producing aircraft parts for
the aircraft industry. In 1980, in addition to his insurance activities, he
began developing properties in Los Angeles County and Kern County.
Mr. Visco is involved in many community services. He assists the YMCA in
various capacities as well as his participation in their annual fund-raisers.
He has served as Vice Chairman of the United Way from 1972 -
1974. Mr. Visco was co-founder and Charter President of the North Los
Angeles County Regional Center for the Developmentally Disabled. Mr. Visco
financially supports many organizations from the Boy Scouts of America
to the Child Abuse Center, American Cancer Society and other organizations
that support the mentally retarded citizens of the Antelope Valley. He
assisted, along with Kaufman & Broad, in building the Antelope Valley
Assistance League Day Care Center.
Mr. Visco began his political career in 1974 when he was appointed to the
Republican State Central Committee and subsequently assisted many State
candidates as well as Presidential campaigns. He was a delegate to the
Republican National Convention of 1976, 1980 and 1984 supporting Ronald
Reagan for President and had the high honor of being selected as a member of
the Electoral College to accomplish the constitutional duty of electing the
President of the United States. Mr. Visco was a delegate to the National
Conventions in 1992 and 1996. Mr. Visco currently serves on the Republican
Party Executive Committee and as an ex-officio member of the Republican
Central Committee.
Mrs. Cheryl L. Rex is the Corporate Secretary and has been with Rexhall
since 1986 serving in many different capacities. Mrs. Rex served as
Administrative Operations Manager, in addition to being responsible for
the interior design and decor of the motorhomes, as well as assisting in the
production of the Company's product brochures.
<PAGE>
Item 11. Executive Compensation.
Cash Compensation
The following table sets forth certain information as to the five highest
paid(1) of the Company's executive officers whose cash compensation exceeded
$100,000 for the year ended December 31, 1998:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other Annual
Principal Position Year Salary ($) Bonus($) Compensation (2)
William J. Rex 98 250,000 604,917 ---------
President & CEO 97 250,000 168,243 ---------
96 250,000 199,890 ---------
Donald C. Hannay, Sr. 98 52,000 177,600 ---------
V.P. of Sales & Marketing 97 52,800 170,391 ---------
96 52,800 171,550 ---------
Demetrio Arias 98 47,000 93,000 ---------
V.P. of Production
Anthony J. Partipilo 98 77,100 46,325 ---------
Chief Financial Officer
(1) Note: Only four executive officers received cash compensation in excess
of $100,000.
(2) The unreimbursed incremental cost to the Company of providing
perquisites and other personal benefits during 1997 did not exceed, as to
any named officer, the lesser of $50,000 or 10% of the total 1997 salary
and bonus paid to such named officer and, accordingly, is omitted from the
table. These benefits included (I) reimbursement for medical expenses and
(ii) amounts allocated for personal use of a company-owned automobile
provided to Mr. Rex.
Compensation Committee Report
On August 1, 1996, the Company renewed for 5 years (expires July 31, 2001)
an employment agreement with William Rex. The employment agreement provides
for an annual salary of $250,000 plus a bonus determined monthly equal to 10%
of income before bonus and taxes. Other executive officers are compensated
based on the following factors as determined by the Board of Directors:
(1) the financial results of the Company during the prior year,
(2) compensation paid to executive officers in prior years, (3) extraordinary
performance during the year and (4) compensation of executive officers
employed by competitors.
Directors who are not Executive Officers are paid $500 per Board Meeting and
there are four Board Meetings per year.
The Company also has an incentive program under which it pays supervisory
employees involved in the sales and production a cash bonus based on specific
performance criteria. Committee members: William J. Rex, Robert A. Lopez
and Al J. Theis.
<PAGE>
Stock Option Plan
In May 1989, the Company adopted the 1989 Incentive and Nonstatutory Stock
Option pursuant to Section 422A of the Internal Revenue Code of 1986, as
amended, to (i) key employees, and (ii) to directors and consultants to the
Company designated by the Board as eligible under the Option Plan. Under the
Option Plan, options for up to 225,000 shares may be granted.
The Option Plan is administered by the Board of Directors or by a committee
appointed by the Board, which determines the terms of options granted,
including the exercise price, the number of shares subject to the options,
and the terms and conditions of exercise. No option granted under the Option
Plan is transferable by the optionee other than by will or the laws of
descent and distribution, and each option is exercisable during the lifetime
of the optionee only by such optionee.
The exercise price of all stock options granted under the Option Plan must
be at least equal to the fair market value of such shares on the date of
grant, and the maximum term of each option may not exceed 10 years. With
respect to any participant who owns stock possessing more then 10% of the
voting rights of the Company's outstanding capital stock, the exercise price
of any stock option must be not less than 110% of the fair market value on
the date of grant and the maximum term of such option may not exceed five
years. Stock appreciation rights are not authorized under the Option Plan.
Options/SAR Grants
Number of % of Total
Securities Option/SARs
Underlying Grants to Exercise
Options/SARs Employeesn or Base Expiration
Name Year Granted (#) in Fiscal Year Price ($/SH) Date
William J. Rex 1998 -0- -0- -0-
1997 -0- -0- -0-
1996 -0- -0- -0-
Donald C.
Hannay 1998 -0- -0- -0-
1997 -0- -0- -0-
1996 -0- -0- -0-
Option/SAR grants Canceled
Number of Securities % of Total Option
Securities Underlying Grants canceled
Name Year Options/SARS to employees Base Price
Grants Canceled (#) (S/SH)
William J. Rex 1998 -0- -0- -0-
1997 -0- -0- -0-
1996 -0- -0- -0-
Donald C.
Hannay 1998 -0- -0- -0-
1997 -0- -0- -0-
1996 -0- -0- -0-
<PAGE>
Aggregated Option/SAR Exercises in last FY
and Fy-End Options/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Unexercisable Unexercisable
Realized ($) (1)
William J. Rex 112,000 349,000 -0-/-0- - 0-/-0-
Donald C. Hannay 11,000 35,750 11,000/-0- $ 63,250/-0-
(1) 12/31/98 close price $9.00 vs. option price.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the ownership of the
Company's Common Stock by (I) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock,
(ii) each of the Company's directors beneficially owning Common Stock and
(iii) all of the Company's officers and directors as a group as:
Number of
Name of Beneficial Owner Shares Percent of
Outstanding Beneficially Shares at
or Identity of Group Owned (1) March 31, 1999
William J. Rex (1)..... 1,546,000 51.4%
c/o Rexhall Industries
46147 7th Street West
Lancaster, California 93534
All Directors and
Officers as a Group (6
persons) 1,570,000 52.2%
(1) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock Shown as Beneficially owned by
him, subject to applicable community property law.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
<PAGE>
<PAGE>
PART IV
Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
Financial Statements
See Item 8
Financial Statement Schedule
All applicable financial statement schedules have been omitted since required
information is not present in amount sufficient to require separate
disclosure on the balance sheet or information is included in the financial
statements.
(3.0) Articles of Incorporation and By Laws. See 1992 10KSB
(4.0) Instruments defining the rights of Holders of Common Stock. See
Page 24 of Prospectus dated 6/22/89. See 1992 10KSB.
(10.1) Revolving Credit Agreement dated May 22, 1998 between Company
and Bank of America. Refer to original agreement and subsequent
amendments.
(10.2) Employee agreement of William J. Rex
(10.3) Authorized Ford Motor Company Converter Pool Agreement effective
6/27/90. See 1992 10KSB
(10.4) Incentive and Non-Statutory Stock Option Plan.
(10.5) Material Contracts - Chevrolet Quality Approved Converter
Program dated 10/1/88. See 1992 10KSB.
(13.1) Supplemental information pursuant to Section 15D of Exchange Act
1) Proxy Statement dated 1997
2) 1997 Annual Report
(13.2) Form 10Q is attached for 1st, 2nd, and 3rd quarter labeled
(Exhibit 13)
(22.0) Published report regarding matters submitted to vote (Proxy
statement dated 1998)
(23.0) Consent of experts and counsel. See 1992 10KSB
(23.1) Consent of KPMG LLP
(23.2) Consent of Deloitte and Touche LLP
(24.0) Power of Attorney Exhibits - Donald C. Hannay Sr.,
Robert A. Lopez, Al J. Theis, and Frank A. Visco, all signed
form 10-K for year ended 12/31/98.
(27.0) Financial Data Schedule
(28.0) Copy of State Insurance Annual Report for year ended 12/31/98
labeled (Exhibit 28).
Signatures
<PAGE>
In accordance with Section 13 or a5(b) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Rexhall Industries, Incorporated
(Registrant)
By /S/ William J. Rex By /S/ Richard K. Krueger
(Signature and Title)* (Signature and Title)*
William J. Rex Richard K. Krueger
President, CEO & Chairman Chief Accounting Officer
Date: March 31, 1999 Date: March 31, 1999
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in capacities and on the
dates indicated.
By /S/ William J. Rex By /S/ Richard K. Krueger
(Signature and Title)* (Signature and Title)*
William J. Rex Richard K. Krueger
President, CEO & Chairman Chief Accounting Officer
Date: March 31, 1999 Date: March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,017,000
<SECURITIES> 0
<RECEIVABLES> 4,781,000
<ALLOWANCES> 150,000
<INVENTORY> 12,774,000
<CURRENT-ASSETS> 23,411,000
<PP&E> 6,276,000
<DEPRECIATION> 1,216,000
<TOTAL-ASSETS> 28,471,000
<CURRENT-LIABILITIES> 12,606,000
<BONDS> 0
0
0
<COMMON> 6,788,000
<OTHER-SE> 399,000
<TOTAL-LIABILITY-AND-EQUITY> 28,471,000
<SALES> 71,454,000
<TOTAL-REVENUES> 71,454,000
<CGS> 59,314,000
<TOTAL-COSTS> 65,781,000
<OTHER-EXPENSES> 135,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,000
<INCOME-PRETAX> 5,684,000
<INCOME-TAX> 2,474,000
<INCOME-CONTINUING> 3,390,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,390,000
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.13
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