SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended March 31, 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: 3,160,850 as of 5/12/00.
<PAGE>
REXHALL INDUSTRIES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Condensed Financial Statements (Unaudited):
Condensed Balance Sheets at March 31, 2000
and December 31, 1999 3
Condensed Statements of Operations for the
three months ended March 31,2000
and March 31, 1999 4
Condensed Statements of Cash Flows for the
three months ended March 31, 2000
and March 31, 1999 5
Notes to Condensed Financial Statements
as of March 31, 2000 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3.
Quantitative and Qualitative Disclosure about Market Risks 10
PART II - OTHER INFORMATION
Repurchase Agreements 10
Legal Proceedings 11
Reports on Form 8-K: None 11
Signatures 12
<PAGE>
(Unaudited) (Audited)
March 31, December
PART I - FINANCIAL INFORMATION 2000 1999
Item 1. - Condensed Financial Statements
REXHALL INDUSTRIES, INC. CONDENSED BALANCE SHEETS (Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,224,000 $ 6,330,000
Accounts Receivable 6,013,000 6,972,000
Inventories 15,164,000 16,504,000
Deferred Income Taxes 1,028,000 1,133,000
Other Current Assets 296,000 341,000
Total Current Assets 29,725,000 31,280,000
Property and Equipment - Net 4,733,000 4,753,000
Property Held for Sale 127,000 131,000
Other Assets 13,000 20,000
TOTAL ASSETS $ 34,598,000 $ 36,184,000
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 8,262,000 $ 10,915,000
Warranty Allowance 961,000 1,000,000
Accrued Legal Settlement 94,000 125,000
Accrued Legal 563,000 612,000
Dealer Incentives 933,000 1,050,000
Other Accrued Liabilities 1,033,000 497,000
Accrued Compensation and Benefits 596,000 725,000
Current Portion of Long-Term Debt 31,000 31,000
Total Current Liabilities 12,473,000 14,955,000
Deferred Income Tax Liabilities 137,000 198,000
Long Term Debt, less current installments 730,000 737,000
TOTAL LIABILITIES 13,340,000 15,890,000
SHAREHOLDERS' EQUITY
Preferred Stock - no par value;
Authorized 1,000,000 shares;
No shares outstanding at
December 31, 1999 and March 31, 2000 --- ---
Common Stock - no par value;
Authorized 10,000,000 shares; issued and
outstanding 3,161,000 at December 31,1999
and at March 31, 2000 6,788,000 6,788,000
Loan receivable from exercise of options (399,000) (399,000)
Retained Earnings 14,869,000 13,905,000
TOTAL SHAREHOLDERS' EQUITY 21,258,000 20,294,000
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 34,598,000 $ 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 OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, 2000 March 31, 1999
Sales $ 20,664,000 $ 22,233,000
Cost of Sales 17,361,000 18,094,000
Gross Profit 3,303,000 4,139,000
Selling, General, Administrative
and Other Expenses 1,648,000 2,044,000
Income Before Income Taxes 1,655,000 2,095,000
Income Taxes 691,000 836,000
Net Income $ 964,000 $ 1,259,000
Basic Net Income Per
Common Share (1) $ .31 $ .40
Diluted Net Income Per Common
and Equivalent Share (1) $ .31 $ .40
Weighted Average
Shares Outstanding-Basic (1) 3,160,000 3,160,000
Weighted Average
Shares Outstanding - Diluted (1) 3,160,000 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. - Condensed Financial Statements
REXHALL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 964,000 $ 1,259,000
Adjustments to reconcile net income
to net cash provided by
Operating Activities:
Depreciation and Amortization 120,000 67,000
Change in Deferred Income Taxes 44,000 (47,000)
(INCREASE) DECREASE IN:
Accounts Receivable 959,000 (197,000)
Inventories 1,340,000 (1,034,000)
Other 52,000 9,000
INCREASE (DECREASE) IN:
Accounts Payable (2,653,000) 1,118,000
Other Current Liabilities 323,000 400,000
Dealer Incentives (117,000) 17,000
Net cash provided by operating activities 1,032,000 1,592,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
Additions to property and equipment (95,000) (220,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (7,000) (6,000)
Repayment of short-term notes (36,000) ---
Net cash used in financing activities (43,000) (6,000)
NET INCREASE IN CASH 894,000 1,366,000
BEGINNING CASH BALANCE 6,330,000 5,017,000
ENDING CASH BALANCE $ 7,224,000 $ 6,383,000
See accompanying notes to condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
REXHALL INDUSTRIES, INC.
Notes to the Condensed Financial Statements
March 31, 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 the 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.
3. Detail of Inventory March 31, 2000 December 31, 1999
Raw Material $ 8,584,000 $11,341,000
Work in Process 1,695,000 2,485,000
Finished Motorhomes 4,885,000 2,678,000
TOTAL $15,164,000 $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 is not expected to have a material impact upon
the financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. - Management Discussion and Analysis of Financial Condition and
Results of Operations. All statements in this discussion and analysis which
relate to future sales, costs, capital expenditures or earnings are
"Forward-Looking Statements" and should be read subject to the assumptions
contained in the "Forward-Looking Statements".
Results of Operations
Comparison of the Three Months ended March 31, 2000 to the Three Months ended
March 31, 1999
Revenues - 2000 Compared with 1999
Net revenues for the first quarter ended March 31, 2000 were $20,664,000 as
compared to $22,233,000 for the first quarter in 1999. This represents a 7%
decrease from the prior year. Units sold for the quarter ended March 31,
2000 were 289 as compared to 327 for the prior year quarter end. The
decrease in revenues is primarily attributable to the bankruptcy of one of
the Company's significant customers located in Arizona. Of the $13,400,000
in sales to the Arizona dealer during 1999, $8,870,000 came in the first
quarter of 1999. First quarter 2000 sales to the Arizona dealer were
$1,750,000, representing a decrease of $7,120,000 from the first quarter
of 1999.
Cost of Sales - 2000 compared with 1999
Cost of Sales for the quarter ended March 31, 2000 were $17,361,000 compared
to $18,094,000 for the first quarter of 1999 reflecting primarily the
decrease in sales.
Gross Margins for the first quarter of 2000 was 16.0% as compared to 18.6%
for the quarter ended March 31, 1999. The decrease in the gross profit
percentage was due to the impact of the lost sales from the Arizona dealer
and to marginal cost increases in each of the three major cost categories
comprising direct costs. Direct labor, material and chassis costs were all
higher in relation to the reduced revenue for the period. The sudden
decrease in shipments in relation to the level of production contributed to
the erosion of margins in the first quarter of 2000. Approximately 30% of
sales for the period were from the Company's lower margin models, up 4% from
1999. The Company anticipates the margins to hold or improve, but there can
be no assurance that this will happened due to the unknown nature of the
impact of competition within the industry. See the discussion in Part II,
Other Information.
Selling, General Administrative and Other Expenses-2000 compared with 1999
Selling, General and Administrative and Other Expenses decreased by
approximately $396,000 from the first quarter of 1999 to the first quarter of
2000. Sales, selling, general administrative and other expenses decreased to
8% as a percentage of sales when compared to 9.2% for the quarter ended March
31, 1999. The 1.2% reduction was accomplished by maintaining many of the
controllable fixed costs. Several of the costs that showed significant
decreases in the quarter, including dealer incentives, were related to sales
volume and do not necessarily relate to short term management controls and
future savings. In addition, $200,000 in dealer incentives were reversed
during the period ended March 31, 2000 as a result of various rebates no
longer being a liability to the dealer which recently filed bankruptcy.
Income Before Taxes - 2000 Compared to 1999
Income tax expense was $691,000 for the quarter ended March 31, 2000 as
compared to $836,000 in the first quarter of 1999. Income taxes are
provided based upon the estimated effective tax rate for the entire fiscal
year applied to the pre-tax income for the period. The effective tax rate is
subject to ongoing evaluation by management.
<PAGE>
Financial Condition, Capital Resources and Liquidity
The Company has relied primarily on internally generated funds, trade credit
and debt to finance its operations and expansions. As of March 31, 2000, the
Company had working capital of $17,252,000, compared to $16,325,000 at
December 31, 1999. The $927,000 increase in working capital is primarily due
to a $864,000 increase in cash and a $2,653,000 decrease in accounts
payable, partially offset by a $1,340,000 decrease in inventories and
$959,000 decrease in accounts receivable. The increase in cash is the result
of the positive operating results and decrease in receivables. The decrease
in inventory and accounts payable is due to a lower chassis allocation from
Ford and fewer chassis ordered related to a decrease in sales orders.
As of March 31, 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 31,
2000. 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 workmen's compensation insurance in California. At March
31, 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 March 31, 2000.
The Company has a line of credit with a chassis vendor, Ford Motor Credit
Company ("FMCC"), with a $4,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (10% at March 31, 2000). All
borrowings are secured by the Company's assets. The outstanding balance
included in accounts payable at March 31, 2000 was $4,797,000. Management
expects the temporary over-advance will be approved or the line expanded.
The Company has adequate resources to pay down this amount to the borrowing
limit if approval is not obtained.
Capital expenditures during the first quarter of 2000 were $95,000.
Management anticipates an increase in the rate of capital expenditures for
the remainder of 2000 related to refurbishment and expansion of the
production facilities and related production equipment. The anticipated
increases are expected when the Company begins construction of the new
facility.
The Company anticipates that it will be able to satisfy its ongoing cash
requirements through 2000, including payments related to the legal
settlement, stock repurchases and expansion plans at the California facility,
primarily with cash flows from operations, supplemented, if necessary, by
borrowings under its revolving credit agreement or if needed, long-term
financing on the new plant.
New Accounting Pronouncements
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 is not expected to 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.
<PAGE>
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 lost 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, rising interest rates can affect sales.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In the ordinary course of its business, the Company is exposed to certain
market risks, including changes in interest rates. After an assessment of
these risks to the Company's operations except for the impact of the Arizona
dealer's bankruptcy, 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. During 1999, 1998 and
1997 the Company repurchased approximately $1,973,000 $832,000 and
$3,145,000 respectively, of motorhomes under these agreements. At March 31,
2000 and December 31, 1999, approximately $35,000,000 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. The motorhomes guaranteed under the
repurchase agreements with the dealer's flooring agents are estimated at
$6,000,000 for approximately 81 units. Management believes that the impact
to the Company's financial position and prospective operations should not be
adversely affected in the long term and should become beneficial if the
Company can establish more dealers in the Arizona market. Now that the state
of Arizona is not exclusive territory and limited to this one dealership, the
Company believes it has the opportunity to expand its dealer network
throughout Arizona. The short-term impact has resulted in a decrease in the
Company's sales in the first quarter of 2000. This dealer represented
approximately 16% of sales in 1999 and the Company was expecting at least
that for the first quarter 2000. The Company was caught with excess
inventory at their plant because of the dealer's untimely filing of
bankruptcy in the first quarter. The Company hopes to regain the lost sales
in the third or fourth quarter. In the short-term, the repurchase and
re-distribution of their existing product could adversely affect the Company.
The Company hopes to re-establish the significant customer as a dealer while
at the same time establishing a new dealer base throughout the entire state
of Arizona. The Company hopes to accomplish this by the end of the second
quarter of 2000. Management is currently working with the dealer and related
flooring agents to assist him in selling units to retail customers. Through
the date of this report, no units have been repurchased or idenified to be
repurchased from this significant customer under the financial institutions
repurchase agreements. If required to repurchase these units, management
beleives it will be able to satifsfy its ongoing cash requirements through
cash on hand and existing credit facilities.
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 this report to be signed on its behalf by the
undersigned there unto duly authorized.
REXHALL INDUSTRIES, INC. by
(Registrant)
Date: May 12, 2000 /S/William J. Rex
William J. Rex
Chairman, President and Chief Executive Officer
Date: May 12, 2000 /S/Richard K. Krueger
Richard K. Krueger
Controller
