SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended September 30, 2000 Commission file number: 0-17824
REXHALL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
California 95-4135907
(State of Incorporation) (IRS Employer Identification No.)
46147 7th Street West, Lancaster, California 93534
(Address of principal executive offices) (Zip Code)
(661) 726-0565
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No _____.
Applicable only to Corporate Issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,069,000 as of 11/9/00.
<PAGE>
REXHALL INDUSTRIES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Financial Statements (Unaudited):
Condensed Balance Sheets at September 30, 2000
and December 31, 1999 3
Condensed Statements of Earnings for the
three and nine months ended September 30,2000
and September 30, 1999 4-5
Condensed Statements of Cash Flows
for the nine months ended September 30, 2000
and September 30, 1999 6
Notes to Condensed Financial Statements
as of September 30, 2000 7-8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Item 3.
Quantitative and Qualitative Disclosure about Market Risks 11
PART II - OTHER INFORMATION
Repurchase Agreements 12
Property Acquisition 12
Legal Proceedings 13
Reports on Form 8-K 13
Signatures 14
<PAGE>
(Unaudited)
September 30 December 31
PART I - FINANCIAL INFORMATION 2000 1999
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC. CONDENSED BALANCE SHEETS
ASSETS
CURRENT ASSETS
Cash $ 4,267,000 $ 6,330,000
Accounts Receivable 4,129,000 6,972,000
Inventories 17,853,000 16,504,000
Other Current Assets 239,000 341,000
Deferred Income Taxes 842,000 1,133,000
Total Current Assets 27,330,000 31,280,000
Property and Equipment - Net 5,588,000 4,753,000
Property Held for Sale 116,000 131,000
Other Assets 7,000 20,000
TOTAL ASSETS $ 33,041,000 $ 36,184,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 7,383,000 $ 10,915,000
Warranty Allowance 800,000 1,000,000
Accrued Legal 450,000 737,000
Dealer Incentives 900,000 1,050,000
Other Accrued Liabilities 416,000 497,000
Accrued Compensation and Benefits 305,000 725,000
Current Portion of Long-Term Debt 32,000 31,000
Total Current Liabilities $ 10,286,000 $ 14,955,000
Deferred Income Tax Liabilities 71,000 198,000
Long-Term Debt, Less Current Installment 714,000 737,000
TOTAL LIABILITIES 11,071,000 15,890,000
SHAREHOLDERS' EQUITY
Preferred Stock - no par value;
Authorized 1,000,000 shares; No
shares outstanding at September 30, 2000
and December 31, 1999 --- ---
Common Stock - no par value;
Authorized 10,000,000 shares; issued and
outstanding 3,071,000 shares at September 30, 2000
and 3,161,000 shares at
December 31, 1999 6,304,000 6,788,000
Loan receivable from exercise of options (61,000) (399,000)
Retained Earnings 15,727,000 13,905,000
TOTAL SHAREHOLDERS' EQUITY 21,970,000 20,294,000
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 33,041,000 $ 36,184,000
See accompanying notes to condensed financial statements
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Condensed Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
September 30, 2000 September 30, 1999
Net Revenues $ 12,646,000 $ 20,590,000
Cost of Sales 10,047,000 16,574,000
Gross Profit 2,599,000 4,016,000
Selling, General, Administrative
Expenses and Other Expenses 1,716,000 1,956,000
Earnings Before Income Taxes 883,000 2,060,000
Income Taxes 385,000 809,000
Net Earnings $ 498,000 $ 1,251,000
Basic and Diluted Earnings
Per Share (1) $ 0.16 $ 0.40
Weighted Average
Shares Outstanding -
Basic and Diluted (1) 3,096,000 3,160,000
(1) Retroactively adjusted to give effect to 5% stock dividend of 150,488
in 1999.
See accompanying notes to condensed financial statements
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Nine Months Ended
September 30, 2000 September 30, 1999
Net Revenues $ 48, 400,000 $ 63,760,000
Cost of Sales 40,466,000 51,939,000
Gross Profit 7,934,000 11,821,000
Selling, General, Administrative
Expenses and Other Expenses 4,741,000 5,572,000
Earnings Before Income Taxes 3,193,000 6,249,000
Income Taxes 1,371,000 2,491,000
Net Earnings $ 1,822,000 $ 3,758,000
Basic and Diluted Earnings
Per Share (1) $ 0.58 $ 1.19
Weighted Average
Shares Outstanding -
Basic and Diluted (1) 3,144,000 3,160,000
(1) Retroactively adjusted to give effect to 5% stock dividend of 150,488
shares in 1999.
See accompanying notes to condensed financial statements
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 1,822,000 $ 3,758,000
Adjustments to reconcile net earnings to net cash provided by (used in)
Operating Activities:
Depreciation and Amortization 372,000 234,000
Loss on sale of fixed assets --- 5,000
Net change in deferred tax assets and liabilities 164,000 (64,000)
(INCREASE) DECREASE IN:
Accounts Receivable 2,843,000 (2,681,000)
Inventories (1,349,000) (5,972,000)
Other Assets 115,000 (327,000)
INCREASE (DECREASE) IN:
Accounts Payable (3,531,000) 3,386,000
Other Accrued and Current Liabilities (580,000) (261,000)
Dealer Incentives (150,000) 122,000
Net cash used in operating activities (294,000) (1,800,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,192,000) (581,000)
Proceeds from the sale of fixed assets --- 59,000
Net cash used in investing activities (1,192,000) (522,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (22,000) (21,000)
Repayment of short-term debt (71,000) ---
Repurchase of common stock (484,000) ---
Net cash used in financing activities (577,000) (21,000)
NET DECREASE IN CASH (2,063,000) (2,343,000)
BEGINNING CASH BALANCE 6,330,000 5,017,000
ENDING CASH BALANCE $ 4,267,000 $ 2,674,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR
Interest $ 147,000 $ 84,000
Income Taxes 2,900,000 2,900,000
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES:
Repayment of loans receivable through
cancelation of bonus liability $ 337,000 ---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
REXHALL INDUSTRIES, INC.
Notes to the Condensed Financial Statements
September 30, 2000
1. Basis of Presentation:
The accompanying unaudited condensed Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of management, they include all adjustments,
consisting of normal accruals, necessary to present fairly the information
set forth herein in accordance with generally accepted accounting principles
for interim reporting.
For further information refer to the Financial Statements and footnotes
included in the Registrant's Annual Report on Form 10-K for year ended
December 31, 1999.
The Results of Operations for any interim period are not necessarily
indicative of the results to be expected for the full year.
2. Summary of Significant Accounting Polices:
Income Taxes
Income tax expense is based upon the estimated effective tax rate for the
entire fiscal year. The effective tax rate is subject to ongoing evaluation
by management.
Earnings Per Share
Basic earnings per share represents net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share represents net earnings divided by the weighted-
average number of shares outstanding, inclusive of the dilutive impact of
common stock options.
During the nine months ended September 30, 2000, the Company repurchased
90,000 common shares on the open market at an average cost of $5.38 per
share.
3. Detail of Inventory September 30, 2000 December 31, 1999
Raw Material $ 6,728,000 $ 11,341,000
Work in Process 1,783,000 2,485,000
Finished Motorhomes 9,342,000 2,678,000
TOTAL $ 17,853,000 $ 16,504,000
<PAGE>
4. New Accounting Pronouncement:
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensations - an interpretation of APB Opinion No.25 (FIN44). This
Interpretation provides guidance for issues that have arisen in applying
APB Opinion No.25, Accounting for Stock Issued to Employees. FIN 44 applies
prospectively to new awards, exchanges of awards in a business combination,
modifications to outstanding awards, and changes in grantee status that
occur on or after July 1, 2000, except for the provisions related to
repricings and the definition of an employee which apply to awards issued
after December 15, 1998. The provisions related to modifications
to fixed stock option awards to add a reload feature are effective for
awards modified after January 12, 2000. The new Interpretation did not
have a material impact upon the financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations. All statements in this discussion and analysis which
relate to future sales, costs, capital expenditures or earnings are
"Forwarding Looking Statements" and should be read subject to the
assumptions contained in the "Forward Looking Statements".
Results of Operations
For the Three Months ended September 30, 2000 and for the Three Months ended
September 30, 1999
Revenues - 2000 compared with 1999
Net Revenues were $12,646,000 for the third quarter ended September 30, 2000
compared to $20,590,000 for the same quarter in the prior year. The
third quarter sales in 2000 represented a 38.6% decrease from the comparable
quarter of 1999. Net units sold for the third quarter 2000 were 171 as
compared to 307 for the same period of 1999. The decrease in sales is
attributable to the decrease in net units sold resulting from the general
downturn in the motorhome market associated with the increase in fuel
and interest costs. In addition, during the third quarter of 2000, 30 units
at a cost of $1,748,000 were repurchased under the floorplan repurchase
agreements relatede to the Arizona dealership which declared bankruptcy in
the first quarter of 2000. Since such units were not required to be
repurchased under the repurchase agreements, the company was able to
negotiate favorable repurchase terms. Third quarter 1999 sales to the
Arizona dealer that declared bankruptcy were not significant.
Cost of Sales - 2000 compared with 1999
Cost of Sales for the third quarter of 2000 were $10,047,000 compared to
$16,574,000 for the third quarter of 1999 reflecting the decline in sales.
The Company has made efforts to control variable costs during this
period.
Gross Profit as a percentage of sales was 20.5% for the quarter ended
September 30, 2000 as compared to 19.5% for the same period in the prior
year. The improvement in margin is primarily attributable to inefficiencies
experienced with the introduction of the millennium edition motorhome during
the third quarter of 1999 which were not experienced during the third quarter
of 2000. The Company will continue to tryand improve the Gross Profit,
however, there can be no assurance due to the unknown nature of competitors
within the industry.
Selling, General, Administrative and Other Expenses-2000 compared with 1999
Selling, General, Administrative and Other Expenses decreased by
approximately $240,000 between the third quarter ended September 30, 2000 and
1999, respectively. This decline is primarily due to a reduction
in bonuses and dealer incentives, partially offset by increased advertising
costs. When comparing selling,general, and administrative and other expenses
as a percentage of sales, the quarter ended September 30,2000 is 13.5% versus
9.5% for the same quarter in the prior year. The decline is primarily the
result of fixed costs being spread over a lower base of sales.
Income Taxes - 2000 compared with 1999
Income tax expense was $385,000 for the quarter ended September 30, 2000 as
compared to $809,000 in the third quarter of 1999. Income taxes are provided
based upon the estimated effective tax rate for the entire fiscal year
applied to pre-tax income for the period. The effective tax rate is subject
to ongoing review and evaluation by management.
<PAGE>
Results of Operations
For the Nine Months ended September 30, 2000 and for the Nine Months ended
September 30, 1999
Net Revenues - 2000 compared with 1999
For the nine months ended September 30, 2000, net revenues were $48,400,000
compared to $63,760,000 for the same period in the prior year. This
$15,360,000 shortfall represents a 24.1% decrease from the prior year. Net
units sold for these periods were 664 and 952, respectively. On a percentage
basis, net units sold decreased by 30.0%. The substantial decrease in
revenues is primarily attributed to the bankruptcy of one of the Company's
significant customers located in Arizona and poor economic conditions
effecting the industry. Sales to this dealer through the nine month period
in 1999 were $9,800,000. Sales to the Arizona dealer in 2000 were less than
$2,000,000. In addition, the Company repurchased 49 units from the Arizona
dealer at a cost of $3,060,000.
Costs of Sales - 1999 compared with 1998
Cost of Sales for 2000 were $40,466,000 compared to $51,939,000 for 1999,
reflecting the decline in sales.
Gross Profit was 16.4% for the nine months ended September 30, 2000 compared
to 18.5% for the same period in the prior year. The erosion in margin is
due to the decline in sales and production at a time when net revenues were
impacted by the repurchase of 49 Arizona dealer units. The Company's efforts
to improve sales in Arizona, improve production efficiencies and aggressively
institute price changes in the product line, should have a positive impact on
product margins. The Company continues to explore avenues to improve gross
profit, however, there can be no assurance that gross profit will improve due
to the unknown nature of competitors within the industry.
Selling, General Administrative and Other Expenses - 2000 compared to 1999
Selling, General Administrative and Other Expenses were $4,741,000 and
$5,572,000 for the nine months ended September 30, 2000 and 1999,
respectively. The percentage of sales for the nine months ended
September 30, 2000 is 9.8% compared to 8.7% for the same period in 1999. The
decrease in actual costs is attributable to a decrease in administrative
bonuses, warranty costs, and sales allowances offset by an increase in
advertising costs. The increase in costs as a percentage of sales in
primarily the result of fixed costs being spread over a lower base of sales.
Income taxes - 2000 compared with 1999
Income taxes for the nine months ended September 30, 2000 were $1,371,000 as
compared to $2,491,000 for the same period in the prior year. Income taxes
are provided based upon the estimated effective rate for the entire fiscal
year applied to the pre-tax income for the period. The effective tax rate
is subject to ongoing evaluation by management.
Financial Condition, Capital Resources and Liquidity
The Company has relied internally on generated funds, trade credit and debt
to finance its operations and expansion. As of September 30, 2000 the
company had working capital of $17,043,000 compared to $16,325,000 at
December 31, 1999. The $718,000 increase in working capital is primarily due
to a $1,349,000 increase in inventories, a $3,531,000 decrease in accounts
payable, a decrease in accrued liabilities of $730,000 offset by a
$2,843,000 decrease in accounts receivable. The cash position decreased by
$2,063,000 primarily due to funding the partial repurchase of Arizona units
of $1,240,000 and the acquisition of the property in Mesa, Arizona, along
with the repurchase of 90,000 shares of common stock for $484,000. Payments
through September 30, 2000 related to the Arizona property totaled $993,000.
<PAGE>
As of September 30, 2000 the Company has a $3,500,000 line of credit with a
bank which can be used for working capital purposes. The line expires on
July 1, 2001. Under this line of credit, $343,000 has been set aside as an
irrevocable standby letter of credit for the Company to meet the requirements
for self-insurance established by the Department of Industrial Relations
which regulates worker's compensation insurance in California. At September
30, 2000, 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 September 30, 2000.
The Company has a line of credit with a chassis vendor, Ford Motor Credit
Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (10.5% at September 30, 2000).
All borrowings are secured by the Company's assets. The outstanding balance
included in accounts payable at September 30, 2000 was $3,500,000.
Capital expenditures during the first nine months of 2000 were $1,192,000.
Management anticipates capital expenditures for the remainder of the 2000 to
be $250,000 for refurbishment and expansion of certain production facilities,
production equipment and the completion of the Arizona facility.
The Company anticipates that it will be able to satisfy its ongoing cash
requirements through 2000, including payments related to the repurchase of
the Arizona dealer units and expansion plans at the California and Arizona
facilities, primarily with cash flows from operations, supplemented, if
necessary, by borrowings under its revolving credit agreement.
New Accounting Pronouncement:
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44,Accounting for Certain Transactions involving Stock
Compensations - an interpretation of APB Opinion No.25 (FIN44). This
Interpretation provides guidance for issues that have arisen in applying
APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44
applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee
status that occur on or after July 1, 2000, except for the provisions related
to repricings and the definition of an employee which apply to awards issued
after December 15, 1998. The provisions related to modifications
to fixed stock option awards to add a reload feature are effective for awards
modified after January 12,2000. The new Interpretation did not have a
material impact upon the financial statements.
Seasonality
The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized a higher portion of its sales in the
second quarter and third quarter, consistent with the summer vacation season.
This is consistent with industry trends, although in this quarter other
factors have acted to counter the normal seasonal trend towards increased
sales.
Forward-Looking Statements
Our reports contain forward-looking statements, usually expressed as our
expectations or our intentions. These are based on assumptions and on facts
known to us today, and we do not intend to update statements in this report.
Rexhall's business is both seasonal and cyclical, and the timing of the
business cycle cannot be predicted. Its business is also subject to
increases in material costs, and pricing and other pressures from
substantially larger competitors, labor disruptions and adverse weather.
Rexhall depends on independent dealers for its sales and the loss of
significant dealers may have an adverse impact on sales and profits. 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. More recently,the sharp increase in fuel
prices has resulted in an unprecedented and corresponding decline in sales.
A subsequent decline in fuel prices may not reverse the downward trend during
this fiscal year.
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In the ordinary course of its business, the Company is exposed to certain
market risks, primarily changes in interest rates. After an assessment of
these risks to the Company's operations, the Company believes that
its primary market risk exposures (within the meaning of Regulation S-K Item
305) are not material and are not expected to have any material adverse
effect on the Company's financial condition, results of operations
or cash flows for the next fiscal year. The Company's line of credit
permits a combination of fixed and variable rates at the Company's option,
which Management believes reduces the risk of interest rate
fluctuation.
Part II - Other Information
Repurchase Agreements - Motorhomes purchased under financing agreements by
dealers are subject to repurchase by the Company, in some cases, at dealer
cost plus unpaid interest in the event of default by the dealer. To date
repurchases have not resulted in significant losses. Tfhe recent repurchases
from the Arizona dealers are expected to be resold without sustaining
significant losses. During 1999, 1998 and 1997 and the nine months ended
September 30, 2000, the Company repurchased approximately $1,973,000
$832,000, $3,145,000 and $3,138,000 respectively, of motorhomes under these
agreements. At September 30, 2000 and December 31, 1999, approximately
$22,000,000 and $34,233,000, respectively, of dealer inventory is covered by
repurchase agreements. Dealers do not have the contractual right to return
motorhomes under any Rexhall Dealer Agreement. There are states which
require the repurchasing of motorhomes pursuant to their individual state
laws.
In March 2000, the Company was notified that one of its significant customers
had filed for reorganization bankruptcy. Through the date of this report, the
Company has committed to repurchase forty-nine units at a cost of $3,060,000.
In addition to the eight units repurchased in the second quarter, forty-one
units were accrued for during the nine months ended September 30, 2000. To
date $1,828,000 of the repurchase amount has been paid. No additional units
have been identified for repurchase from this dealer under the financial
institutions repurchase agreements. Management believes it will be able to
satisfy its ongoing cash requirements through cash on hand and existing credit
facilities. Management believes that the impact to the Company's financial
position as a result of the bankruptcy has been absorbed as of the third
quarter of 2000. Prospective operations are not expected to be adversely
affected in the long term and may become beneficial to the Company as
additional dealers generate a presence in the Arizona market. The short-term
impact has resulted in a decrease in the Company's sales and gross profit in
2000. This dealer represented approximately 16% of sales in 1999 and the
Company was expecting at least that for the first half of 2000. The Company
continues to carry excess inventory at their plant because of the dealer's
untimely filing of bankruptcy in the first quarter.
Flooring sources retained ownership of thirty-two units which were subject
to interest charges totaling $45,000 for July through September. Twenty
units remained subject to interest at September 30, 2000.
Property Acquisition - On July 17, 2000, the Company purchased property and
a partially constructed commercial building and all related "improvements" in
Arizona. The purchase price for the property, $794,000. The Company will
also fund the completion of the commercial building and related improvements,
not to exceed $450,000. These payments shall be paid in a series of progress
payments to be determined by mutual written agreement of Buyer and Seller.
The Company paid $200,000 in September 2000 and $50,000 in October 2000 with
completion expected in November 2000.
<PAGE>
The property is located in Mesa, Arizona and is the future site for motorhome
sales and service for the remaining inventory of the bankrupt Arizona
dealership and future shipments as to be determined.
Item 1- Legal Proceedings
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 alleged that a leveling system on
a motorhome purchased from Rexhall was defective and caused damages to
Elworthy and Marshall of $1,000,000 for medical expenses, loss of earnings,
and pain and suffering. Rexhall prevailed in its defense with zero dollars
being awarded to the Plaintiffs. The verdict is currently under appeal by
the Plaintiffs. 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 on appeal 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
results of operations.
Item 2. - Reports on Form 8-K
a) Reports on Form 8-K: Filed May 1, 2000; Repurchase of Stock.
<PAGE>
REXHALL INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused thisreport to be signed on its behalf by the
undersigned thereunto duly authorized.
REXHALL INDUSTRIES, INC. by
(Registrant)
Date: November 14, 2000
/s/William J. Rex
William J. Rex
Chairman, President and
Chief Executive Officer
Date: November 14, 2000
/s/Richard K. Krueger
Richard K. Krueger
Controller
