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, 1999
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
(State or other jurisdiction of Incorporation or organization)
95-4135907
(IRS Employer Identification No.)
46147 7th Street West
Lancaster, CA 93534
(Address of principal executive offices)
Registrant's telephone number, including area code: (661) 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 30, 2000 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 30, 2000 totaled 1,649,000. This determination of
affiliate status is not necessarily a conclusive determination of other
purposes.
As of March 28, 2000 there were 3,172,925 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. 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.
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.
<PAGE>
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 Class A motorhomes in the United States
compared with units and dollar sales of the Company during the years ended
December 31, 1997, 1998 and 1999:
% Change % Change
Unit From Prior Revenues From Prior
Sales Year (000) Year
Total Recreational Vehicles
1999 473,800 7.4% 12,452,384 20.5%
1998 441,300 .6% 10,337,006 6.6%
1997 438,800 (6.0)% 9,696,588 (3.8)%
Class A Motorhomes
1999 49,400 15.2% 4,394,722 35.2%
1998 42,900 14.1% 3,249,846 23.6%
1997 37,600 3.0% 2,629,180 14.0%
Rexhall Industries, Inc.
1999 1,249 11.3% 84,739 17.3%
1998 1,122 3.7% 72,254 14.7%
1997 1,082 (7.5)% 63,012 (3.0)%
Approximately 77 million Americans were born between the years of 1946
and 1964. Commonly known as "baby boomers", this demographic facts 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.
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.
<PAGE>
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
- Workhorse chassis with the 290 H.P. Vortec engine
- Spartan Mountain Master chassis with a 300, 315 or 330 H.P.
diesel engine
- Spartan Summit chassis with a 260 H.P. diesel 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 of chassis, Rexair, Aerbus, RoseAir, Vision, Anthem
and American Clipper models are differentiated by exterior graphics, floor
plans 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 60 or 100 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, 34,000 or
35,000 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, microwave oven, roof air conditioners,
and video cassette recorder. Optional equipment includes 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 vary in 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 $110,000 to
$130,000.
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. During 1999,
1998, and 1997, 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.
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.
<PAGE>
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 104
units per month during 1999. Total gross units produced in 1999, was 1,249
units. Increases in roduction 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 (Ford) and Workhorse Custom
Chassis, LLC (formerly, part of GM Corporation). Rear engine pushers are
purchased from Spartan Motors. 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 Ford chassis under the converters agreement bears interest at the
rate prime plus 1% (9.5% at December 31, 1999) 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 chassis' from Spartan and
Workhorse have net 30 day terms. Approximately 92% of all chassis were
purchased from Ford and Workhorse Custom Chassis, LLC.
In the first quarter of 1999, GM Corporation completed the sale of their
motorhome chassis manufacturing division to Workhorse Custom Chassis, LLC.
Purchases of chassis, previously provided by GM, are now purchased from
Workhorse Custom Chassis, LLC. Availability of chassis' ordered from
Workhorse Custom Chassis, LLC, has not caused any significant delays to date,
however, the Company has little experience with this vendor.
During the third quarter of 1999, Ford Motor Company advised the Company
that they are changing their chassis allocation program for the year 2000.
Management anticipates that this could result in a lower monthly allocation
of chassis. In anticipation of the revised allocation program, the Company
has increased their chassis inventory. For the year 2000, the Company will
also pursue alternative sources of chassis to augment any possible reduction
in allocation.
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
<PAGE>
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 substantially reduce the current chassis allocation, 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, 1999 and December 31, 1998, the Company's contingent liability
was approximately $34,233,000 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.
Subsequent to December 31, 1999, the Company was notified that one of
its significant customers filed for bankruptcy. Management believes that the
impact to the Company's financial position and results of operations for 1999
is not significant. Due to the uncertainties surrounding the bankruptcy,
management is unable to determine the future impact to the Company's
financial position and results of operations.
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, 1999, 1998 and 1997, the Company's backlog of dealer orders
<PAGE>
were $9,724,000, $15,232,000 and $3,864,000 respectively. The Company
believes that backlog is not necessarily a reliable indication of future
sales because dealer orders not only fluctuate but, by industry customs, may
be canceled 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 $1,386,000, $1,041,000 and $1,753,000, for the years ended
December 31, 1999, 1998,and 1997 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 or by the Company's own service facility in Lancaster, California.
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 50
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, Workhorse Chassis,
LLC (formerly part of GM), and Spartan 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 conditions. 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. Management intends to remain aware of
these factors and react to them, but cannot predict their timing or
significance.
<PAGE>
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 are
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 "Rexhall", "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, 1999, the Company had a total of 464 employees (463 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. In September 1996, expansion construction began at the
Lancaster site. 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.
Until December 17, 1999, the Company owned a 97,000 square foot
production facility on 12 acres in Elkhart, Indiana. The Elkhart facility
was debt free with no mortgages on the property. The production facility
was used to manufacture motorhomes until December 30, 1997 when the company
decided to cease production at the Elkhart facility. As a result of this
decision to restructure its operations and cease production, the Company
recorded a charge to operations of $1,042,000 in 1997. See footnote 2 to the
financial statements. The company retained its wholesale motorhome sales,
warranty and service operations at the location throughout 1998. The
Company sold the Indiana facility to a third party on December 17, 1999 and
recorded a gain of $577,000.
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, 1999, the
Company was indebted to the City of Lancaster Redevelopment Agency an amount
of $768,000 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 $940,000 at December 31, 1999. The Company
has leased a portion of the facility to Lancaster RV since December 1997.
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, Indiana. The facility has 1,500 sq.
ft. of office space and a 3,500 sq. ft. warehouse area. This property is
currently available for sale.
Rexhall Industries, Inc. has entered into a tentative agreement with the
City of Lancaster to acquire 14 acres adjacent to its headquarters in
Lancaster, CA. The agreement will require Rexhall to provide jobs in the
Lancaster Enterprise Zone in exchange for the property and tax credits. If
Rexhall does not fulfill all covenants of the agreement by January 31, 2012,
at that time, Rexhall will be required to pay the balance of the promissory
note of $613,453. Rexhall believes that if it is required to pay the entire
balance in the year 2012, Rexhall would still benefit by purchasing 14 acres
for $613,453, which is under the present market value. The purchase
agreement is expected to be finalized in fiscal 2000 at which point the
company plans to build a new plant to manufacuture its own chassis and rear
engine diesel motorhome.
The Company believes that its facilities are adequate to meet its
foreseeable needs.
<PAGE>
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.
New vehicle coupons expire on December 31, 2000 while service, parts, and
labor coupons expired on December 31, 1999. 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 was estimated at approximately 5,000. During 1997 the Company
recorded a charge and established a liability of $1,590,000 related to this
settlement. During the fourth quarter of 1999, the Company released $604,000
of the settlement reserve due to less than expected coupon redemption rates.
At December 31, 1999, the remaining settlement liability is $125,000,
representing the estimated utilization of $1,250 coupons for new motorhomes.
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. The Company believed that it has meritorious defenses against
the Elworthy and Marshall claim and has vigorously defended itself against
the claim. 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 that the final disposition of this matter will
not have a material adverse effect on the company's financial position or
results 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.
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 1999.
<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 1997 according to NASDAQ:
1999 High Low
First Quarter $ 9.17 $ 7.62
Second Quarter 12.26 7.50
Third Quarter 12.62 9.50
Fourth Quarter 11.75 8.38
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
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
Holders
At March 31, 2000, the Company had 65 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, 1995 through December 31,
1999. The financial information as of and for each of the five years in the
period ended December 31, 1999 were derived from audited financial statements
of the Company.
<PAGE>
Statement of Operations Data:
(in thousands, except per-share date)
Year Ended December 31,
1999 1998 1997 1996 1995
Net Revenues $ 84,739 $ 72,254 $ 63,012 $ 64,959 $60,709
Cost of Goods Sold 69,659 59,314 55,921 56,167 51,981
Gross Profit 15,080 12,940 7,091 8,792 8,728
Selling, General, and
Administrative
Expenses 7,597 7,549 7,286 6,426 5,281
Restructuring Charge --- (282) 1,042 --- ---
Income (Loss) from
Operations 7,483 5,673 (1,237) 2,366 3,447
Interest Income 256 157 3 29 69
Interest Expense (208) (101) (134) (171) (136)
Legal Settlement 604 --- (1,590) --- ---
Other Income(Expense) 151 135 46 (93) 14
Gain on Sale of Fixed Assets 573 --- --- --- ---
Income (Loss) Before
Income Taxes 8,859 5,864 (2,912) 2,131 3,394
Provision for Income
Taxes (Benefit) 3,557 2,474 (1,077) 847 1,360
Net Income (Loss) $ 5,302 $ 3,390 ($ 1,835) $ 1,284 $ 2,034
Net Income (Loss)
Per Share - Basic (1) $ 1.68 $ 1.09 ($ .61) $ .41 $ .66
Net Income (Loss) per
Share - Diluted (1) $ 1.68 $ 1.08 ($ .61) $ .41 $ .65
Weighted Average Shares
Outstanding - Basic (1) 3,161,000 3,118,000 3,032,000 3,098,000 3,084,000
Weighted Average
shares Outstanding-
Diluted (1) 3,161,000 3,140,000 3,032,000 3,148,000 3,154,000
Balance Sheet Data:
(in thousands)
As of December 31,
1999 1998 1997 1996 1995
Working Capital $16,325 $10,805 $ 7,356 $ 9,519 $ 9,269
Total Assets 36,184 28,471 23,178 23,496 19,975
Long Term Debt
less Current Portion 737 767 797 826 852
Shareholders Equity $20,294 $14,992 $11,480 $13,581 $12,225
(1) Retroactively adjusted to give effect to a 5% stock dividend of 150,488
shares in 1999.
<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 Revenues
Year Ended December 31,
1999 1998 1997
Net Revenues 100.0% 100.0% 100.0%
Costs of goods sold 82.2 82.1 88.7
Gross profit 17.8 17.9 11.3
Selling, general, and
administrative expenses 9.0 10.4 11.6
Restructuring charge --- (.4) 1.7
Income(loss) from operations 8.8 7.9 (2.0)
Legal Settlement .7 --- (2.5)
Other Income(expense), net .2 0.2 (0.1)
Gain on sale of fixed assets .7 --- ---
Income(loss) before income
taxes (benefit) 10.4 8.1 (4.6)
Provision for income taxes (benefit) 4.1 3.4 (1.7)
Net income(loss) 6.3% 4.7% (2.9%)
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 demographics, 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 normally
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. Throughout 1998 the Company retained its wholesale motorhome
sales, warranty and service operations at the Indiana production facility.
In December 1999, the Company sold 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. During 1998, the
Company's restructuring effort was completed and $282,000 of the
restructuring charge was reversed. In the fourth quarter of 1999 $604,000 of
the legal settlement was reversed as a result of less than expected coupon
redemptions.
<PAGE>
Result of Operations
Comparison of the Year Ended December 31, 1999 to Year Ended
December 31, 1998
Net revenues for the year ended December 31, 1999, were $84.7 million,
compared to $72.3 million for 1998, an increase of $12.4 million or 17.3%.
The number of units shipped in 1999 increased 127 to 1249 in 1999 from 1,122
in 1998, an increase of 11.3%. The average net selling price increased
approximately 5% during the period. The increase in average per unit selling
price results from a 75% increase in diesel model sales over the prior year
and continued increases in double slide unit sales (50%). The increases in
these higher priced models were complimented by the strong demand for
Rexhall's lower priced Vision and American Clipper models, whose sales
increased by 30% over 1998 sales. The 75% increase in diesel sales came
mainly because the Company lagged behind in 1998.
Gross profit for the year ended December 31, 1999 increased to $15.1
million from $12.9 million for 1998, an increase of $2.2 million or 16.5%.
The gross margin for 1999 was 17.8% as compared to 17.9% for 1998. The gross
profit margin remained steady as the Company was able to hold most material
costs stable and pass on the few increases that were necessary. While there
was no material change in production labor cost, the introduction of the
millennium edition motorhome in late 1999 resulted in a temporary increase in
direct labor costs.
Selling, general and administrative expenses (SG&A) for the year ended
December 31, 1999 were $7.6 million, compared to $7.5 million for 1998.
Overall, SG&A expense remained relatively unchanged from the prior year.
Within this cost category several areas of cost increased in conjunction with
sales but were offset by other reductions in cost. The decrease in selling,
general and administrative expenses as a percentage of net revenues from
10.4% in 1998 to 9.0% in 1999 results from the increased sales level while
maintaining the level of administrative spending.
At December 31, 1999, the Company's most significant obligations under
the Masterjohn legal settlement had been completed. As a result of the less
than expected coupon redemptions, the Company re-evaluated the required legal
settlement reserve resulting in the reversal of $604,000. The remaining
$125,000 represents the estimated utilization of $1250 coupons for new
motorhome purchases.
On December 17, 1999, the Company sold its Indiana manufacturing
facility. The sale resulted in a pre-tax gain of $577,000 for the year ended
December 31, 1999. The Company halted production at the 97,000 square foot
Indiana factory nearly two years ago as it consolidated its operations in
California.
The Company's effective income tax rate was 40.2% for the year ended
December 31, 1999 as compared with 42.2% for 1998. Basic and diluted net
income per share was $1.68 and $1.68 respectively, for the year ended
December 31, 1999, as compared to basic and diluted net income per share of
$1.09 and $1.08, respectively, in 1998. Exclusive of the impacts of the
restructuring and legal settlement non-recurring items during 1999 and 1998,
net income would have been $4.9 million for the year ended December 31, 1999
as compared to net income of $3.2 million for 1998. Basic and diluted income
per share excluding the impact of the aforementioned non-recurring items
during 1999 and 1998 would have been $1.56 for the year ended
December 31, 1999 as compared to $1.03 for 1998. The increase in basic and
diluted net income per share was due to increased sales and decreased SG&A
costs as a percentage of net revenues.
Comparison of Year Ended December 31, 1998 to Year Ended
December 31, 1997
Net revenues for the year ended December 31, 1998, were $72.3 million,
compared to $63.0 million for 1997, an increase of $9.3 million or 14.7%.
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 10% during the period.
Gross profit for the year ended December 31, 1998 increased to $12.9
million from $7.1 million for 1997, an increase of $5.8 million or 82.5%.
<PAGE>
The gross margin for 1998 was 17.9% 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 $7.5 million, compared to $7.3 million for 1997, an
increase of $0.2 million or 3.6%. The increase in SG&A is due principally to
increased sales and related warranty expense as compared to 1998. The
decrease in selling, general and administrative expenses as a percentage of
sale from 11.6% in 1997 to 10.4% in 1998 results from the increased sales
level and efficiencies gained by operating one plant at the Corporate
Headquarters.
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
hat 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 was recorded as a
Restructuring charge in the accompanying 1997 statement of operations.
During 1997, the Company reached a tentative settlement of its class
action lawsuit. Under the settlement agreement, the Company agreed to 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 service center and at designated dealerships which are suitably
dispersed around the country. The Company accrued for the estimated
costs of the redemption of these coupons and the cash payment, aggregating
$1,590,000 and recorded this as lawsuit settlement in the accompanying 1997
statement of operations.
The Company's effective income tax rate was 42.2% for the year ended
December 31, 1998 as compared with 37.0% for 1997. Basic and diluted net
income per share were $1.09 and $1.08 respectively, for the year ended
December 31, 1998, as compared to basic and diluted net loss per share of
$0.61) in 1997. Exclusive of the impacts of the restructuring and legal
settlement non-recurring items during 1998 and 1997, net income would have
been $3.2 million for the year ended December 31, 1998 as compared to net
loss of ($0.2) million for 1997. Basic and diluted loss per share excluding
the impact of the aforementioned non-recurring items during 1998 and 1997
would have been $1.03 for the year ended December 31, 1998 as compared to
$(0.06) for 1997. The increase in basic and diluted net income per share was
due to increased sales and decreased SG&A costs associated with the closure
of the Indiana manufacturing facility.
Forward-Looking Statements
Our statements of our intentions or expectations are "forward-looking
statements" based on assumptions and on facts known to us today. Those
assumptions will become less valid over time, but we do not intend to update
this report. Rexhall's business is seasonal, and we are approaching the
period when sales have usually declined. Low interest rates, low
unemployment, and ready availability of motor fuel have in the past been
associated with favorable recreational vehicle sales as has occured in 1998
and 1999. However, the recent interest rate and gas price increases, coupled
with recent reports of decreased consumer confidence may reduce future sales
levels. The seriousness of a potential decline cannot be predicted. Many of
Rexhall's competitors are substantially larger, and many of its suppliers and
dealer's also have greater economic power so that the volume and prices of
both supplies and sales may be adversely affected. Management intends to
remain aware of these factors and react to them, but cannot predict their
timing or significance.
<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,
1999, the Company had working capital of $16,325,000, compared to $10,805,000
at December 31, 1998. The $5,520,000 increase in working capital was
generated by operating income and the sale of the Indiana production
facility. Significant working capital increases are reflected in a
$3,730,000 increase in inventories, $2,341,000 in accounts receivable,
$1,313,000 increase in cash and a $610,000 decrease in various accrual,
partially offset by a $2,957,000 increase in accounts payable. The Company
continued to maintain a higher than usual level of chassis inventory during
this time of strong demand for motorhomes. Management believes this is a
good investment of resources as long as the carrying costs are within the
Company's capital means and profit margins.
As of December 31, 1999 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, $220,000 has been set aside as an irrevocable standby letter
of credit for the Company to meet the requirements for self-insurance
established by the Department of Industrial Relations which regulates
workmen's compensation insurance in California. At December 31, 1999,
no amounts were outstanding under the line of credit agreement. The
line of credit contains various covenants. The Company was in compliance
with such covenants as of December 31, 1999.
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% (9.5% at December 31, 1999).
All borrowings are secured by the Company's assets. The outstanding balances
included in accounts payable at December 31, 1999 and 1998 were $7,145,000
and $2,986,000 respectively. This $3,145,000 over-advance at
December 31, 1999 is the result of increased chassis inventory level and is
currently being negotiated with FMCC. The Company is confident that this
temporary over-advance will be approved or the line expanded. The Company
has adequate resources to pay down this amount to the borrowing limit if
approval is not obtained.
Capital expenditures during 1999 were $643,000. Management anticipates
an increased level of capital expenditures in 2000.
The Company anticipates that it will be able to satisfy its ongoing cash
requirements through 2000, 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.
New Accounting Pronouncements
In June 1998, FASB issued Statement of Financial Accounting Standard
SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for all fiscal quarters of fiscal years beginning after June 15,
2000, as amended by SFAS No. 137. Management has determined that the
disclosure requirements from this statement will not impact the financial
statements of the Company.
Item 7A: Quantitiative 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 or 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 fluctuations.
<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, 1999 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. 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, 1999 and 1998, and the result of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
March 10, 2000
<PAGE>
REXHALL INDUSTRIES, INC.
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS 1999 1998
CURRENT ASSETS
Cash $ 6,330,000 $ 5,017,000
Accounts receivables, less allowance
for doubtful accounts $50,000 in
1999, and $150,000 in 1998 6,972,000 4,631,000
Inventories 16,504,000 12,774,000
Deferred income taxes (note 7) 1,133,000 956,000
Other current assets 341,000 33,000
Total Current Assets 31,280,000 23,411,000
Property and equipment at cost net of
accumulated depreciation (note 3 and 6) 4,753,000 4,519,000
Property held for sale (note 13) 131,000 541,000
Other assets 20,000 ---
TOTAL ASSETS $36,184,000 $28,471,000
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (note 4) $10,915,000 $ 7,958,000
Warranty allowance 1,000,000 966,000
Accrued Legal Settlement (note 9) 125,000 765,000
Accrued Legal 612,000 829,000
Dealer Incentives 1,050,000 830,000
Other accrued liabilities 497,000 557,000
Accrued Compensation and Benefits 725,000 672,000
Current portion of long-term debt (note 6) 31,000 29,000
TOTAL CURRENT LIABILITIES 14,955,000 12,606,000
Deferred income taxes (note 7) 198,000 106,000
Long-Term debt (note 6) 737,000 767,000
TOTAL LIABILITIES 15,890,000 13,479,000
SHAREHOLDERS' EQUITY
Preferred Stock - no par value
Authorized, 1,000,000 shares;
No shares outstanding at December 31, 1998
and December 31, 1999 --- ---
Common stock-no par value,
Authorized, 10,000,000 shares,
issued and outstanding;
3,161,000 at December 31, 1999
and 1998 (Note 11) 6,788,000 6,788,000
Loan receivable from exercise
of options (Note 5) (399,000) (399,000)
Retained earnings 13,905,000 8,603,000
TOTAL SHAREHOLDERS' EQUITY 20,294,000 14,992,000
Commitments and Contingencies (Note 4 and 8)
TOTAL LIABILITIES AND SHAREHOLDER EQUITY $36,184,000 $28,471,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
1999 1998 1997
Net Revenues (Note 12) $84,739,000 $72,254,000 $63,012,000
Cost of Sales 69,659,000 59,314,000 55,921,000
Gross Profit 15,080,000 12,940,000 7,091,000
Operating Expenses:
Selling, General and
Administrative Expenses 7,597,000 7,549,000 7,286,000
Restructuring Charge --- (282,000) 1,042,000
Income (Loss) from Operations 7,483,000 5,673,000 (1,237,000)
Other Income (Expense):
Interest Income 256,000 157,000 3,000
Interest Expense (208,000) (101,000) (134,000)
Legal Settlement 604,000 --- (1,590,000)
Other Income 151,000 135,000 46,000
Gain on Sale of Fixed Assets 573,000 --- ---
Income (Loss) Before Income Taxes 8,859,000 5,864,000 (2,912,000)
Income Tax Expense
(Benefit) (Note 7) 3,557,000 2,474,000 (1,077,000)
Net Income (Loss) $ 5,302,000 $ 3,390,000 ($1,835,000)
Basic Net Income
(Loss) Per Share (1) $ 1.68 $ 1.09 $ (.61)
Diluted Net Income
(Loss) Per Share (1) $ 1.68 $ 1.08 $ (.61)
Weighted Average Shares
Outstanding - Basic (1) 3,161,000 3,118,000 3,032,000
Weighted Average Shares
Outstanding - Diluted (1) 3,161,000 3,140,000 3,032,000
(1) Retroactively adjusted to give effect to 5% stock dividend of 150,488
shares in 1999.
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 and 1999
COMMON STOCK LOAN RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
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 Income --- --- --- (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
5% Stock Dividend 151,000 --- --- --- ---
Net Income --- --- --- 5,302,000 5,302,000
BALANCE,
December 31, 1999 3,161,000 $6,788,000 ($399,000) $13,905,000 $20,294,000
See accompanying notes to financial statements
<PAGE>
REXHALL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income(loss) $ 5,302,000 $ 3,390,000 ($1,835,000)
Adjustments to reconcile net income (loss)
to net cash provided by
Operating Activities:
Depreciation and amortization 368,000 344,000 216,000
Gain on sale of property,
plant and equipment (573,000) --- ---
Restructuring charges - non-cash effect --- --- 437,000
Provision for deferred income taxes (85,000) 1,311,000 (1,726,000)
(Increase) decrease in:
Accounts receivable (2,341,000) 747,000 (2,170,000)
Inventories (3,730,000) (3,335,000) 4,056,000
Income tax receivable --- 337,000 (66,000)
Increase(decrease) in:
Accounts payable 2,957,000 1,846,000 (1,480,000)
Restructuring Reserve --- (605,000) 605,000
Warranty allowance 34,000 29,000 582,000
Accrued legal settlement (640,000) (825,000) 1,590,000
Accrued legal (217,000) 481,000 ---
Dealer incentives 220,000 221,000 269,000
Other assets and liabilities (300,000) 639,000 312,000
Net cash provided by
operating activities 995,000 4,580,000 790,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (643,000) (482,000) (427,000)
Proceeds from sale of
property and equipment 1,024,000 --- ---
Net cash provided by (used in)
investing activities 381,000 (482,000) (427,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (28,000) (28,000) (28,000)
Repayments on short-term notes (35,000) --- ---
Proceeds from exercise of stock options --- 199,000 ---
Repurchase and retirement of stock --- (63,000) (266,000)
Net cash provided by (used in)
financing activities (63,000) 108,000 (294,000)
NET INCREASE IN CASH 1,313,000 4,206,000 69,000
BEGINNING CASH BALANCE 5,017,000 811,000 742,000
ENDING CASH BALANCE $ 6,330,000 $ 5,017,000 $ 811,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Income taxes paid during the year $ 4,056,000 $ 1,090,000 $ 696,000
Interest paid during the year $ 183,000 $ 101,000 $ 259,000
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") operates in
one business segment to design, manufacture and sell 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 for bad debts is 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, 1999 and 1998:
1999 1998
Raw materials $ 11,341,000 $ 7,593,000
Work-in-Progress 2,485,000 1,522,000
Finished Goods 2,678,000 3,659,000
Total $16,504,000 $12,774,000
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, power train and appliances, which are warranted
<PAGE>
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 $1,386,000, $1,041,000 and $1,753,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
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 carry forwards. 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.
Earnings per Share - Basic earnings per share represents net earning divided
by the weighted average number of common shares outstanding during 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, 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 1998, FASB issued Statement of
Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for all fiscal quarters of
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137.
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, 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.
Long-Term Debt: The fair value of the Company's long-term debt is estimated
based on quotations made on long-term debt facilities with similar quality
and terms.
Reclassifications - Certain reclassifications have been made to the 1998 and
1997 financial statements to conform to the 1999 presentation.
<PAGE>
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, 1999 and 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
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1999
and 1998:
Useful Lives
(In years) 1999 1998
Building and Land 5, 31.5 4,381,000 4,094,000
Furniture, fixtures and equipment 2-7 1,490,000 1,332,000
Autos and trucks 5-7 322,000 309,000
6,193,000 5,735,000
Less accumulated depreciation and amortization 1,440,000 1,216,000
Property and equipment, net $4,753,000 $4,519,000
4. LINES OF CREDIT
The Company has available a $3,500,000 revolving line of credit with a bank
expiring on July 1, 2001. Under this line of credit, $220,000 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, 1999, no amounts were outstanding under this
line and $220,000 of standby letters of credit have been issued. All
borrowings are collateralized by the Company's assets.
The Company has a line of credit with another chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $4,000,000 limit. Borrowings under the line
bear interest at an annual rate of prime plus 1% (9.5% at December 31, 1999).
All borrowings are secured by the Company's assets. The outstanding balances
included in accounts payable at December 31, 1999 and 1998 were $7,145,000
and $2,986,000 respectively. The $3,145,000 over-advance at December 31, 1999
is currently being negotiated with FMCC. The Company is confident that this
temporary over advance will be approved or this line expanded. The Company
has adequate resources to pay down this amount to the borrowing limit if
approval is not obtained.
<PAGE>
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 $399,000 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, 1999). 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. No loans
were made to officers during 1999.
6. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998
consists of the following: 1999 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 $940,000
at December 31, 1999. $768,000 $796,000
Less: Current Portion 31,000 29,000
Long-Term debt $737,000 $767,000
Future annual minimum principal payments due on long-term debt
(including current portion) as of December 31, 1999 are as follows:
Year Ending December 31,
2000 31,000
2001 32,000
2002 34,000
2003 37,000
2004 41,000
Thereafter 593,000
$768,000
The estimated fair value of long-term debt is $652,000 at December 31, 1999.
<PAGE>
7. INCOME TAXES
The components of income tax expense (benefit) are as follows:
Years Ended December 31,
1999 1998 1997
Current:
Federal $2,884,000 $1,018,000 $ 526,000
State 758,000 145,000 123,000
3,642,000 1,163,000 649,000
Deferred:
Federal (89,000) 950,000 (1,347,000)
State 4,000 361,000 (379,000)
(85,000) 1,311,000 (1,726,000)
$3,557,000 $2,474,000 ($1,077,000)
The components of deferred tax assets (liabilities) at December 31, 1999 and
1998 are as follows:
1999 1998
Current:
Allowance for bad debts 16,000 60,000
Inventory reserves and unicap 88,000 25,000
Warranty accrual 237,000 222,000
Dealer incentives 195,000 101,000
Reserve for self insurance 133,000 101,000
Legal reserves 164,000 239,000
Other accrued liabilities 32,000 45,000
State tax 268,000 163,000
$1,133,000 $ 956,000
Non Current:
Depreciation (198,000) (106,000)
Net deferred tax assets $ 935,000 $ 850,000
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,
1999 1998 1997
Income (loss) before
income tax $ 8,859,000 $5,864,000 ($2,912,000)
Statutory federal
tax rate (benefit) 34% 34% 34%
Expected tax
expense (benefit) 3,012,000 1,994,000 (990,000)
State taxes net
of federal effect 500,000 334,000 (169,000)
Permanent differences 36,000 6,000 6,000
IRS audit resolution, primarily
State Tax deduction --- --- 101,000
Write off of income
tax receivable --- 140,000 ---
Other adjustments 9,000 --- (5,000)
Provision for income
taxes (benefit) $ 3,557,000 $ 2,474,000 ($1,077,000)
<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 1999, 1998 and 1997 the Company
repurchased approximately $1,973,000 $832,000 and $3,145,000 respectively, of
motorhomes under these agreements. At December 31, 1999 and 1998,
approximately $34,233,000 and $25,530,000 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
approximately 3 states which require the repurchasing of motorhomes pursuant
to their individual state laws.
Subsequent to December 31, 1999, the Company was notified that one of its
significant customers has filed for bankruptcy. Management believes that the
impact to the Company's financial position and results of operations for 1999
is not significant.
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. The Company believe that it has meritorious defenses against the
Elworthy and Marshall claim and has vigorously defended itself against the
claim. 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 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. New vehicle coupons expire December 31, 2000 while
service, parts and labor expired December 31, 1999. 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.
During the fourth quarter of 1999, the Company released $604,000 of the
settlement reserve due to less than expected coupon redemption rates. The
December 31, 1999 the remaining accrual balance of $125,000 is for the
remaining legal estimated settlement costs associated with the coupons still
outstanding.
<PAGE>
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:
Weighted
Number of Range of Options Average
Options Prices per Share Exercise Price
Outstanding options at
December 31, 1996 123,000 2.75 - 3.25 3.13
Options exercised --- - ---
Options canceled --- - ---
Outstanding options at
December 31, 1997 123,000 2.75 - 3.25 3.13
Options exercised (123,000) 2.75 - 3.25 3.13
Options canceled --- --- ---
Outstanding options at
December 31, 1998 and 1999 --- --- ---
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 1999 and 1998 or 1997. 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 1999, 1998 or 1997.
No non-statutory stock options were granted under the stock plan during 1999,
1998 or 1997.
11. COMMON STOCK
In September 1999, the Company announced a 5% stock dividend of 150,488
shares issued on October 15, 1999 to shareholders of record as of September
15, 1999. The impact of this stock dividend has retroactively been recorded
for all periods presented.
12. SIGNIFICANT CUSTOMERS
The Company had one major customer RV World Productions aka RV Supercenter
(five (5) Arizona locations) who accounted for 16% of the Company's net
revenues during 1999. 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 net revenues during 1998. The Company
had one major customer, RV World Productins a.k.a. RV Supercenter (five (5)
Arizona locations), who account for 11% of the Company's sales during 1997.
13. PROPERTY HELD FOR SALE
Property held for sale consisted of 12 acres of land in Elkhart, Indiana. A
97,000 square foot building resides on the property which used 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. During the year-ended December
31, 1998, the Company's Board of Directors approved a plan to sell the
Elkhart property and facility in its entirety. The Elkhart land and facility
are debt free with no mortgages on the property.
<page)
On December 17, 1999, the Company sold the Elkhart, Indiana manufacturing
facility land and building for total consideration of $966,000, net of
executory costs. The accompanying results of operations for the year ended
December 31, 1999 reflect the sale of such property and the resulting gain on
sale of $577,000, net of executory costs. At December 31, 1999, the
Company's customer service center in Elkhart, Indiana remains as available
for sale. The facility has 1500 square feet of office space and a 3500
square foot warehouse area with a net book value of $131,000 as of December
31, 1999. The Company has evaluated the recoverability of this real estate
and related building and has concluded that the appraised value of the assets
exceeds the related book value. Accordingly, no impairment 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 1999, 1998 and 1997 (in thousands):
Year ended December 31,
1999 1998 1997
Net income (loss) used
for basic and
diluted income per share $5,302 $3,390 ($1,835)
Share of Common Stock and
Common Stock equivalents:
Weighted average shares used
in basic computation 3,161 3,118 3,032
Weighted stock options --- 22 ---
Shares used in diluted computation 3,161 3,140 3,032
Income per share:
Basic $ 1.68 $ 1.09 ($ 0.61)
Diluted $ 1.68 $ 1.08 ($ 0.61)
During 1999, the Company issued a 5% stock dividend, resulting in the
issuance of 150,488 share of common stock.
The impact of this stock dividend has been retroactively, recorded in the per
share calculation for periods presented.
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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, 2000 are as follows:
Name Age Positions Held Director Term
William J. Rex (1) (2) 49 Chairman of the Board of 6/01/96 thru
Directors, CEO and President 5/31/00
Donald C. Hannay, Sr. 72 Vice President of Sales 6/01/96 thru
and a Director 5/31/00
Al J. Theis (4) 82 "Director Emeritus" 6/01/96 thru
11/22/99
Robert A Lopez (1) (2) 60 Director 6/01/96 thru
5/31/00
Frank A. Visco (1) 55 Director 12/17/98 thru
5/31/00
Dr. Dennis K. Ostrom (3) 58 Director 7/12/99 thru
5/31/00
Cheryl L. Rex 47 Corporate Secretary
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Dr. Dennis Ostrom was appointed to the Board of Directors July 12, 1999.
(4) Mr. Theis was appointed "Director Emeritus" on November 22, 1999.
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. 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, Establishment Industries employed him, Inc. as Chief Financial
Officer and Corporate Planner. Mr. Theis currently serves as "Director
Emeritus" in an advisory capacity to the Board of Directors.
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.
Dr. Ostrom was elected to the Board of Directors on July 12, 1999. Dr.
Ostrom received his BS, MS and Ph.D. degrees in Engineering from the
University of California, Los Angeles. He majored in structural mechanics
and dynamics. Dr. Ostrom is a Professional Civil Engineer in the State of
California.
Dr. Ostrom was employed by Southern California Edison Company from 1970 -
1996. His position was that of a Consultant. His job was formulating
technical strategy and policy and relating the same to the California
Energy Commission, California Public Utilities Commission, Nuclear Regulatory
Commission and local regulatory agencies.
<PAGE>
Dr. Ostrom has written several papers about risk management and how this
relates to equipment purchasing and risk mitigation strategies, including
insurance purchase decisions. While at Edison, he applied this expertise as
a private consultant (with knowledge and consent of Edison) for other
utilities and organizations, i.e., United States National Academics of
Science and Engineering; Office of Technology Assessment, Congress of the
United States; Coca Cola; Bonneville Power Authority; British Columbia Hydro;
New Zealand Centre for Advanced Engineering; East Bay Municipal Utility
District; Puget Sound and Power; Snohomish County Public Utility District;
Central United States Earthquake Consortium; Tennessee Valley Authority;
Eugene Water & Electric Board and Humbolt Bay Municipal Water District.
From 1988 to present, Dr. Ostrom has been a member of the Board of
Directors for Keysor Century, Inc., Saugus, California.
Currently Dr. Ostrom is an ongoing consultant for San Diego Gas &
Electric, Pacific Gas & Electric and Southern California Edison. In addition
to his consulting work, Dr. Ostrum is the Planning Commissioner for the
City of Santa Clarita.
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, 1999:
SUMMARY COMPENSATION TABLE
Annual Compensation
Bonus
Name and Accrued Other Annual
Principal Position Year Salary Bonus Paid Non-Paid Compensation (2)
William J. Rex 99 250,000 445,000 411,000 ---
98 250,000 295,000 310,000 ---
97 250,000 168,000 --- ---
Donald C.
Hannay, Sr. 99 61,400 201,600 20,700 ---
V.P. of Sales
& Marketing 98 52,000 178,000 --- ---
97 52,800 170,000 --- ---
(1) Note: Only two 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 1999 did not exceed, as to any
named officer, the lesser of $50,000 or 10% of the total 1999 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 J. 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 or
sales commission, (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 three to 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 Frank A. Visco.
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.
<PAGE>
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 than 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.
For the years ended December 31, 1999, 1998 and 1997, there were no
options granted or canceled to key executives. At December 31, 1999 there
were no options outstanding.
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
March 28, 2000:
Number of
Name of Beneficial Owner Shares Percent of
Outstanding Beneficially Shares at
or Identity of Group Owned (1) March 31, 2000
William J. Rex (1)..... 1,623,000 51.3%
c/o Rexhall Industries
46147 7th Street West
Lancaster, California 93534
All Directors and
Officers as a Group (6 persons) 1,649,000 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.
Robert A. Lopez, one of the Company's Directors, owns Nickerson Lumber, which
sells the Company lumber at market rates and exceeds $200,000 per year.
<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 1999
2) 1999 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
(27.0) Financial Data Schedule
(28.0) Copy of State Insurance Annual Report for year ended 12/31/98
labeled (Exhibit 28).
<PAGE>
Signatures
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, there unto
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, 2000 Date: March 31, 2000
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
(Signature and Title)*
William J. Rex
President & CEO
Chairman of the Board
Date: March 31, 2000
By /S/Donald C. Hannay, Sr.
(Signature and Title)*
Donald C. Hannay, Sr.
Vice President of Sales & Marketing
Director
Date: March 31, 2000
By /S/Robert A. Lopez
(Signature and Title)*
Robert A. Lopez
Director
Date: March 31, 2000
By /S/ Frank A. Visco
(Signature and Title)*
Frank A. Visco
Director
Date: March 31, 2000
By /S/ Dr. Dennis K. Ostrom
(Signature and Title)*
Dr. Dennis K. Ostrom
Director
Date: March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,330,000
<SECURITIES> 0
<RECEIVABLES> 6,972,000
<ALLOWANCES> 50,000
<INVENTORY> 16,504,000
<CURRENT-ASSETS> 31,280,000
<PP&E> 4,753,000
<DEPRECIATION> 1,440,000
<TOTAL-ASSETS> 36,184,000
<CURRENT-LIABILITIES> 14,955,000
<BONDS> 0
0
0
<COMMON> 6,788,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,184,000
<SALES> 84,739,000
<TOTAL-REVENUES> 84,739,000
<CGS> 69,659,000
<TOTAL-COSTS> 77,256,000
<OTHER-EXPENSES> (1,584,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208,000
<INCOME-PRETAX> 8,859,000
<INCOME-TAX> 3,557,000
<INCOME-CONTINUING> 5,302,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,302,000
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.68
</TABLE>
