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, 2001
OR
[]Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No fee required] (No fee required)
For the Transition period from to
----- -----
Commission file number: 0-10067
---------------------------------
REXHALL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
California 95-4135907
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
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 15, 2002 the aggregate market value of voting stock held by
non-affiliates was approximately $11,628,500. 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 15, 2002 totaled 1,673,000. This determination of affiliate status is
not necessarily a conclusive determination of other purposes.
As of March 15, 2002 there were 3,057,350 shares of the Registrant's common
stock outstanding.
1
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. In June 2000, the Company incorporated a wholly owned
subsidiary, Price I, Inc., dba, Price One RV, to operate a retail dealership for
Class A motorhomes and other recreational vehicles. In December 2001, the
Company ceased its retail operations. As used herein, the "Company" refers to
Rexhall Industries, Inc. and subsidiary 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 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.
2
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, 2001, 2000 and 1999:
% Change % Change
Unit From Prior Revenues From Prior
Sales Year (000) Year
----- ---- ----- ----
Total Recreational Vehicles
2001 321,000 (23.3%) 8,760,483 (20.8%)
2000 418,300 (11.7%) 11,055,173 (11.2%)
1999 473,800 .4% 12,452,384 .5%
Class A Motorhomes
2001 33,400 (18.5%) 3,486,492 (9.5%)
2000 41,000 (17.0%) 3,854,123 (12.3%)
1999 49,400 15.2% 4,394,722 5.2%
Rexhall Industries, Inc.
2001 726 (20.2%) 56,680 (15.3%)
2000 910 (27.1%) 66,957 (21.0%)
1999 1,249 11.3% 83,714 17.3%
Approximately 77 million Americans were born between the years of
1946 and 1964. Commonly known as "baby boomers", this demographic fact 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 year old 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.
3
The Company currently offers five lines of Class A motorhomes. The
product lines are RoseAir, Rexair, Aerbus, Vision 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 below Raw Materials and Chassis):
- Ford F-53 chassis with a V-10 310 H.P. electronically fuel injected
engine
- Workhorse chassis with the 340 H.P. General Motors Vortec engine
- Spartan Mountain Master chassis with a 330, 350 or 370 H.P. diesel
engine
- Spartan Summit chassis with a 260 H.P. diesel engine
Models range in size from an overall length of approximately 27 feet
to approximately 39 feet with wheelbase ranging from 178 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 under twelve feet.
In addition to size of chassis, RoseAir, RexAir, Aerbus, Vision 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 a 70 or 100 gallon fuel tank (depending on chassis and
model), halogen headlights, dash air conditioning, power steering, automatic
transmission, radial tires, stabilizing air bags, 34,000 or 35,000 BTU furnace,
water heater, batteries mounted on a slide-out tray for easy access and service
and a powered entry step. Standard interior features include a double door flush
mounted refrigerator/freezer, three burner range with automatic pilot light,
large two bowl kitchen sink, toilet, fiberglass shower surround, bathroom sink,
coordinating designer accents, day/night shades. Additional standard equipment
includes a television, television antenna, AM/FM stereo radio with cassette
player, auxiliary power generators, microwave oven, roof air conditioners, and
videocassette recorder. Optional equipment items that may be ordered include a
back up camera, washer and dryer, hydraulic leveling jacks, electric and heated
mirrors, 50 AMP service, ice maker, entertainment center, satellite dish, patio
awning, ducted roof air conditioning, dual pane windows and a simulated
fireplace. Some models may vary in standard equipment.
Suggested retail prices of RoseAir, Rexair, or Aerbus models with
standard equipment range from $83,000 to $183,000 and fully equipped with
available options from $92,000 to $198,000. Suggested retail prices for the
Vision and American Clipper models (entry level) with standard equipment range
from approximately $70,000 to $88,000. In 2000, the Company introduced two new
entry level diesel products, the American Clipper ES and the Vision ES diesel
pushers. The initial marketing strategy dictated a Manufacturer's Suggested
Retail Price (MSRP) of $90,000 with no optional equipment available, but a few
options are now available.
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, some of which include mobile command posts
for police and fire departments and mobile classrooms. Also, some of our
specialty units are modified to be wheelchair accessible. During 2001, 2000, and
1999, 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.
4
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 decorative wallboard 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 driver-side doors, compartment
doors, 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 and better quality.
The Company operated one production shift, producing an average of 57
units per month during 2001. Total gross units produced in 2001 was 687 units.
Increases in production can be achieved at a relatively low incremental cost on
the existing production shift by increasing the number of production employees.
Raw Materials and Chassis
- -------------------------
The principal raw materials used in the manufacturing process are
steel, fiberglass, aluminum, 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 gas chassis from Ford Motor Company (Ford) and Workhorse Custom Chassis,
LLC (formerly, part of GM Corporation). Rear engine diesel pushers are purchased
from Spartan Motors. The Company acquires Ford products under a converter's
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 converter's agreement bears interest at the rate of prime plus
1% (5.75% at December 31, 2001) and is secured by the Ford merchandise. 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 65% of all chassis were purchased from Ford.
As is standard in the industry, arrangements with chassis suppliers
provide that either the Company or the chassis supplier may terminate their
relationship at any time. To date, the Company has not experienced any
substantial shortages of chassis. The recreational vehicle industry as a whole
has from time to time experienced shortages of chassis due to the concentration
or allocation of available resources by suppliers of chassis to the
manufacturers of vehicles other than recreational vehicles or for other causes.
If Ford were to discontinue the manufacturing of motorhome chassis or
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 affected.
Diesel pusher production increased considerably in 2001 as a percent
of the Company's overall production. This has resulted in increased diesel
chassis orders. Production capabilities of Spartan Motors appear sufficient to
meet the anticipated demand in 2002.
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 to the Company upon shipment to the
5
dealer. 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 contingent liability under the repurchase agreements is
limited to the total unpaid balance (including, in some cases, interest and
other charges) owed to the lending institution by reason of its extension of
credit to the dealer to purchase the Company's motorhomes. The contingent
liability under repurchase agreements varies significantly from time to time,
depending upon shipments and dealer sales to end-users. At December 31, 2001 and
2000, the Company's contingent liability was approximately $23,900,000 and
$26,700,000 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 at the gross margin level,
upon resale of the units.
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 major recreational vehicles shows (e.g., California
RV Show in Pomona, California; RVIA Trade Show in Louisville, 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 show 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 has not maintained 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, 2001, 2000 and 1999, the Company's backlog of dealer orders was $15,133,000,
$6,351,000 and $9,724,000 respectively. The Company believes that backlog is not
necessarily a reliable indication of future sales because dealer orders
fluctuate and, by industry customs, may be canceled without penalty.
Product Warranty
- ----------------
The Company currently provides retail purchasers of its motorhomes
with a limited warranty against defects in materials and workmanship for twelve
months or 12,000 miles and a limited structural warranty on the steel cage for
five years or 50,000 miles, both are 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 $1,070,000, $900,000 and $1,386,000 for the years ended
December 31, 2001, 2000, and 1999 respectively. In most cases, warranty work is
performed by a member of the Company's dealer network or by the Company's own
service facilities in Lancaster, California and Mesa, Arizona. Management
believes that the Service Center allows the Company the benefit of providing
better customer service and satisfaction.
6
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 15 years and competes with many manufacturers (such as Monaco,
Fleetwood, National RV, Damon, Winnebago, 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 and
Europe. 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
consumers' disposable income and confidence could have a material adverse impact
on the Company's business. Shortage of gasoline, or a substantial increase in
the price, 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.
Forward-Looking Statements & Risks
- ----------------------------------
Our report contains forward-looking statements, usually expressed as
our expectations, our plans, or our intentions. Backlogs and indications of
future economic conditions are forward-looking statements. 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. Its
business is also subject to increases in materials costs, and pricing and
pressures on finished goods sales prices from substantially larger competitors,
as well as 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, and moderate prices for, motor fuel. Acts of war or terrorism may also have
a negative impact on sales. Management intends to remain aware of these factors
and react to them, but cannot control them or predict their timing or
significance.
Regulation
- ----------
The Company is subject to the provisions of the National Traffic and
Motor Vehicle Safety Act and the safety standards for recreational vehicles and
components which have been promulgated thereunder by the Department of
Transportation. The regulations under that legislation permit the National
Highway Traffic Safety Administration to require a manufacturer to remedy
vehicles containing "defects related to motor vehicle safety" or vehicles that
fail to conform to all applicable Federal Motor Vehicles Safety Standards. The
National Traffic and Motor Vehicles Safety Act also provides for the recall and
repair of recreational vehicles that contain certain hazards or defects.
The Company is subject to the provisions of Transport Canada for
vehicles exported to Canada. The regulations under that legislation 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 also increasingly subject to regulations by the
various states, with respect to relations with its dealers.
The Company is a member of the RVIA (Recreational Vehicle Industry
Association). This association has promulgated stringent standards for
construction in connection with the manufacture of recreational vehicles. Each
of the units manufactured by the Company has an RVIA seal placed upon it to
certify that such standards have been met. The
7
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(R)", "RoseAir", "Rexair(R)", "Aerbus",
"Vision(R)", "American Clipper", "Anthem", "Concord" and "Minibus" as trademarks
but believes its business is not dependent on these names or any other marketing
device. The Company does not have any patents in the conduct of its business.
Employees
- ---------
At December 31, 2001, the Company had a total of 325 employees. 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 on ten acres in Lancaster, California
which serves as both a manufacturing facility and the Company's Corporate
Headquarters. 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. With other
additions completed in 2000, the total square footage is now near 120,000 square
feet. 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, the Company recorded a charge to operations of $1,042,000 in
1997. 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 $573,000.
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, 2001, the Company
was indebted to the City of Lancaster Redevelopment Agency for an amount of
$705,000 with interest at 5.93% per annum due through October 2015. From
December 1997 until June 2001, the Company leased a portion of the facility to
different third parties, which were major RV retail dealers.
In September 1996, the Company purchased a 4,500 square foot facility
located one mile east of Elkhart, Indiana. The facility has 1,500 square feet of
office space and a 3,500 square feet warehouse area. At December 31, 2001, this
property is 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, California. 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,
Rexhall might be required to pay $613,453, which is less than the present market
value of the land. The Company might pay for the land in advance of receiving
the credits, and will be reimbursed as the credits are earned. The purchase
agreement is expected to be finalized in fiscal 2002 at which point the company
plans to manufacture its own rear-engine, diesel chassis and a new motorhome
design.
8
In July 2000, the Company purchased approximately 4 acres in Mesa,
Arizona to serve as a site for Price I, Inc. dba, Price One RV, which is a
wholly owned subsidiary of the Company. The Company paid $809,000 for the land
and a partially constructed commercial building located on the property. Another
$410,000 was spent by the Company to complete the site for the retail sale and
service of motorhomes. In December 2001, the Company ceased its retail
operations, but continues to operate a service facility under the name Rexhall
Service Center - Arizona.
In December 2000, the Company and Mr. William J. Rex, President &
CEO, purchased 1.7 acres in Acton, California for $401,000. The Company and Mr.
Rex each paid 50% of the purchase price and will share equally in the
construction of a building on the property. The Company plans on using its half
of the land and building as an off-site prototype shop, while Mr. Rex intends to
use his half for personal endeavors outside the Company's scope of business.
The Company believes its facilities are adequate to meet its
foreseeable needs.
Item 3. Legal Proceedings
The class action lawsuit Masterjohn et al vs. Rexhall, et al, Case
No. 752188 filed in the Superior Court of Orange County, California was 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 expired on December 31, 2000 while service, parts,
and labor coupons expired on December 31, 1999. Coupons were 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, 2000, the Company had no remaining liability under the settlement
agreement.
Other than the above referenced case, 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 matters will not have
a material effect on its financial statements or results of operations and have
been adequately reserved for.
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 2001.
9
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 1999 according to NASDAQ:
2001 High Low
--------------- ---- ---
Fourth Quarter $ 7.20 $6.99
Third Quarter 4.60 4.30
Second Quarter 6.18 5.70
First Quarter 4.75 4.75
2000 High Low
------------------- ---- ---
Fourth Quarter $ 6.00 $4.25
Third Quarter 5.44 4.28
Second Quarter 9.13 5.06
First Quarter 10.38 7.75
1999 High Low
------------------- ---- ---
Fourth Quarter $11.75 $8.38
Third Quarter 12.62 9.50
Second Quarter 12.26 7.50
First Quarter 9.17 7.62
Holders
- -------
At March 15, 2002, the Company had 60 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, 1997 through December 31, 2001. The
financial information as of and for each of the five years in the period ended
December 31, 2001 were derived from audited financial statements of the Company.
10
Statement of Operations Data:
(in thousands, except share and per-share data)
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Net Revenues $56,680 $66,957 $83,714 $71,454 $63,012
Cost of Goods Sold 51,584 56,493 69,659 59,314 55,921
---------- --------- ------- ------- -------
Gross Profit 5,096 10,464 14,055 12,140 7,091
Selling, General and Administrative Expenses 7,333 6,129 6,572 6,749 7,286
Restructuring Charge --- --- --- (282) 1,042
----------- --------- -------- ------- -------
Income (Loss) from Operations (2,237) 4,335 7,483 5,673 (1,237)
Interest Income 250 274 256 157 3
Interest Expense (181) (448) (208) (101) (134)
Legal Settlement --- --- 604 --- (1,590)
Other Income, net 242 200 151 135 46
Gain on Sale of Fixed Assets 26 --- 573 --- ---
----------- -------- --------- -------- --------
Income (Loss) from Continuing Operations
before Income Taxes (1,900) 1,652 8,859 5,864 (2,912)
Income Taxes Expense (Benefit) (603) 1,474 3,557 2,474 (1,077)
----------- -------- --------- -------- ---------
Income (Loss) from Continuing Operations (1,297) 2,709 5,302 3,390 (1,835)
Income (Loss) from Discontinued Operations
(net of applicable income tax benefit of $333,000
and $268,000 in 2001 and 2002, respectively) (695) (436) --- --- ---
------------- --------- --------- ------- ---------
Net Income (Loss) ($1,992) $2,273 $5,302 $3,390 ($1,835)
============= ========= ========= ======= =========
Net Income (Loss)
from Continuing Operations - per share - Basic ($.43) $.87 $1.68 $1.09 ($.61)
------------- --------- --------- ------- ----------
Net Income (Loss)
from Continuing Operations - per share - Diluted ($.43) $.87 $1.68 $1.08 ($.61)
------------- --------- --------- ------- ----------
Net Income (Loss)
from Discontinued Operations - per share - Basic ($.23) ($.14) --- --- ---
------------- --------- --------- ------- ----------
Net Income (Loss)
from Discontinued Operations - per share - Diluted ($.23) ($.14) --- --- ---
------------- --------- --------- ------- ----------
Net Income (Loss) - per share - Basic ($.66) $.73 $1.68 $1.09 ($.61)
------------- --------- --------- ------- ----------
Net Income (Loss) - per share - Diluted ($.66) $.73 $1.68 $1.08 ($.61)
------------- --------- --------- ------- ----------
Weighted Average Shares Outstanding - Basic 3,041,000 3,116,000 3,161,000 3,118,000 3,032,000
------------- ---------- --------- --------- ----------
Weighted Average Shares Outstanding - Diluted 3,041,000 3,116,000 3,161,000 3,140,000 3,032,000
------------- ---------- --------- --------- ----------
Balance Sheet Data:
(in thousands)
As of December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Working Capital $14,757 $16,600 $16,289 $10,769 $7,320
Total Assets 36,352 40,932 36,162 28,449 23,156
Long Term Debt Less Current Portion 671 705 737 767 797
Shareholders Equity $20,279 $22,362 $20,272 $14,970 $11,444
11
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,
--------------------------
2001 2000 1999
---- ---- ----
Net Revenues 100.0% 100.0% 100.0%
Cost of Goods Sold 91.0 84.4 83.2
--------- ---------- ---------
Gross Profit 9.0 15.6 16.8
Selling, General and Administrative Expenses 12.9 9.2 7.9
--------- ---------- ---------
Income (Loss) from Operations (3.9) 6.4 8.9
Legal Settlement --- --- .7
Other Income (Expense), net .5 .1 .2
Gain on Sale of Fixed Assets --- --- .7
--------- ---------- --------
Income (Loss) from Continuing Operations Before Income Taxes (3.4) 6.5 10.5
Income Tax Expense (Benefit) (1.1) 2.5 4.2
--------- ---------- --------
Income (Loss) from Continuing Operations (2.3) 4.0 6.3
Income (Loss) from Discontinued Operations, net (1.2) (.6) ---
--------- ---------- --------
Net Income (Loss) (3.5%) 3.4% 6.3%
========= ========== ========
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, changes in interest rates,
competition, restrictions on the availability of financing for the wholesale and
retail purchases of recreational vehicles, as well as significant changes in the
availability and price of gasoline.
The Company was founded in 1986 as a manufacturer of recreational
vehicles, and became publicly held in 1989. The Company currently only builds
Class A motorhomes on either gas or diesel chassis supplied by outside
companies. The Company's products are positioned to be value leaders, in that
its products offer many of the design and structural characteristics and quality
components of high-line motorhomes, but at a much more affordable price.
The last two years have been very challenging for the Class A
motorhome industry. Approximately 49,400 Class A motorhomes were sold in 1999,
which was an all-time high. However, when the stock market started to slide in
the spring of 2000, Class A motorhome sales dropped dramatically. Class A
motorhome sales in 2000 dropped 17% to 41,000 and dropped another 19% in 2001 to
33,400, which is the lowest annual level since 1995.
Even though the operating results have been greatly influenced by
this industry-wide downturn, Management knows there are significant
opportunities for improvement, regardless of a recovery by the industry or not.
Management will be focusing on improving the Company's selling and marketing
approaches, as well as generating operating efficiencies from better integration
of production, engineering and purchasing.
The Company's market share from 1999 to 2001 has been between 2.5%
and 2.2%. Management expects this percentage to increase as it continues to
enhance the features and benefits of its offerings, and continues to develop
better dealer relations, especially east of the Rocky Mountains. The Company's
year-end order backlog of over $15 million is an
12
early indicator of an increase in demand for its products.
Significant research and development expenditures of $426,000 and
$131,000 in 2001 and 2000, respectively, have been made to develop a new
motorhome concept to be built on a chassis designed by the Company. The Company
plans to build a new plant in 2002 adjacent to its current facility in
Lancaster, CA, to produce both the new motorhome and the related chassis.
Management believes the Company's $14.8 million of working capital is
strong, which includes $8.7 million in cash. Management expects operating cash
flows to be sufficient to finance the Company's 2002 production ramp-up,
operational improvement initiatives, product enhancements, and complete its
research and development projects. The Company is also planning on minimal
borrowings for the construction of the new plant, but business and market
conditions might arise that make borrowing more prudent.
To counter the short-term and long-term effects of the bankruptcy of
the Company's largest dealer in 2000, the Company established its own retail
operations in Mesa, Arizona, Price I, Inc. dba, Price One, RV. Under the terms
of the repurchase agreements with the bankrupt dealer's lenders, while the
Company was only obligated to repurchase $1.2 million of motorhomes, it elected
to repurchase $4.2 million in order to keep this inventory from being dumped on
the market at substantially lower prices. The retail operations at Price One RV
did not begin in earnest until November of 2000. As of December 31, 2000, the
Company had resold $2.7 million of the repurchased inventory. In December 2001,
the Company ceased its retail operations, but continues to operate a service
facility under the name Rexhall Service Center - Arizona. During December 2001,
the remaining Price One inventory was sold to another dealership in Arizona. The
Company has reported the retail operations as a discontinued operation.
Critical Accounting Policies
- ----------------------------
In the ordinary course of business, management has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. Management believes that the following discussion
addresses our most critical accounting policies, which are those that are most
important to the portrayal of our financial condition and results and require
the most difficult, subjective and complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain.
Valuation of Inventory
The Company values inventories at the lower-of-cost or market using
the first-in, first-out (FIFO) method. Adjustments to the value of inventory are
recorded based upon damage, deterioration, obsolescence and changes in market
value. In determining market value, management has considered its current
replacement cost ensuring it does not exceed net realizable value (i.e.,
estimated selling price in the ordinary course of business less estimated costs
of completion and disposal). Management has evaluated the current level of
inventories considering the order backlog and other factors in assessing
estimated selling prices and made adjustments to cost of goods sold for
estimated decrease in the net realizable value of inventory. These adjustments
are estimates, which could vary significantly, either favorably or unfavorably,
from actual results.
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. 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
13
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 financed motorhome.
Revenues are shown net of repurchases. The Company specifically reserves the
gross margin for known repurchase obligations quarterly and at fiscal year end.
Revenues are also generated from the service of motorhomes and from shipment or
installation of parts and accessories.
Legal Accrual
The Company's current estimated range of liability related to some of
the pending litigation is accrued based on claims for which it is probable that
a liability has been incurred and the amount of the loss can be reasonably
estimated. Because of the uncertainties related to both the amount and range of
loss on the remaining pending litigation, management is unable to make a
reasonable estimate of the liability that could result from an unfavorable
outcome. As additional information becomes available, management will assess the
potential liability related to the pending litigation and revise the estimates.
Such revisions in the estimates of the potential liability could materially
impact the results of operation and financial position.
Result of Operations
- --------------------
Comparison of Year Ended December 31, 2001 to Year Ended December 31,
2000
Net revenues for the year ended December 31, 2001, were $56.7
million, compared to $67.0 million for 2000, a decrease of $10.3 million or
15%. The number of units shipped, net of repurchased units, decreased 184 to
726 in 2001 from 910 in 2000, a decrease of 20%. The average net selling price
increased approximately 6% during the period due to a higher mix of diesel
units, partially offset by discounts offered in the 4th quarter of 2001.
Wholesale unit shipments of the Company's gas motorhomes were down 37%, while
diesel motorhome unit shipments were up 42% when compared to the same period in
2000.
Poor RV industry fundamentals of weakened consumer confidence and
tightening of credit, continue to be the drivers of the overall downturn in the
industry. The events of September 11, 2001 only compounded this difficult
market and added to the decline. This led to an increase in dealer incentives
and discounts to stimulate sales and reduce finished goods inventory.
Management cannot determine when these conditions will improve, however, based
on the Company's year-end order backlog, Management believes market demand is
strengthening.
Gross profit for the year ended December 31, 2001 decreased to $5.1
million from $10.5 million for 2000, a decrease of $5.4 million or 51%. The
gross margin for 2001 was 9.0% as compared to 15.6% for 2000. The primary
drivers of the decrease in gross profit were lower sales, higher discounts and
incentives, and higher overhead costs absorbed by each unit. The decrease in
sales created a smaller absorption base for manufacturing overhead. The nature
of these costs is less variable than direct materials and labor, so overhead
absorption suffers in periods of declining sales. Additionally, a $392,000
write-down of finished goods inventory and a $354,000 write-down of chassis
inventory, were recorded in the third and fourth quarters of 2001, respectively,
to properly reflect lower-of-cost or market inventory valuations.
Selling, general and administrative expenses (SG&A) for the year
ended December 31, 2001 were $7.3 million, compared to $6.1 million for 2000 and
increased as a percentage of sales from 9.2% to 12.9% due to the decline in
sales base and an increase in SG&A expenses. The increase in expenses is
primarily related to an increase in research and development, bad debt, and
legal expenses partially offset by a reduction in officer's bonus and
advertising.
Other income primarily consisted of rental income on the sub-leased
portion of the Company's facilities. As of December 31, 2001, the Company was no
longer sub-leasing any of its facilities.
14
The Company's continuing operations' effective income tax rate was
32% for the year ended December 31, 2001 as compared with 38% for 2000. The
decrease is a result of certain non-deductible expenses being incurred in 2001.
Basic and diluted net income (loss) per share was ($0.66) for the year ended
December 31, 2001, as compared to basic and diluted net income per share of
$0.73 in 2000.
In December 2001, the Company ceased its retail operations, Price One
in Mesa, Arizona. The retail inventory was discounted significantly and sold to
another dealership in Arizona. The net results of the Company's retail
operations are presented in the accompanying financial statements as
"Discontinued Operations".
Comparison of the Year Ended December 31, 2000 to Year Ended December
31, 1999
Net revenues for the year ended December 31, 2000, were $67.0
million, compared to $83.7 million for 1999, a decrease of $16.7 million or 20%.
The number of units shipped, net of repurchased units, decreased 339 to 910 in
2000 from 1,249 in 1999, a decrease of 27%. The average net selling price
increased approximately 10% during the period due to a higher mix of diesel
units and units with double slides.
The decline in net revenues was primarily attributable to the first
down market in years for Class A motorhomes and the bankruptcy of the Company's
largest dealer. The driver of the 17% down turn in the market was declining
consumer confidence since the stock market started dropping in March of 2000.
This triggered a domino effect that led to a tightening of credit for retail
dealers and consumers. These conditions did not improve significantly in 2001.
Gross profit for the year ended December 31, 2000 decreased to $10.5
million from $14.1 million for 1999, a decrease of $3.6 million or 26%. The
gross margin for 2000 was 16% as compared to 17% for 1999. The decrease in sales
created a smaller absorption base for manufacturing overhead, which was the
primary driver behind the decrease in gross margin. Manufacturing overhead
includes costs such as depreciation, indirect labor, shop supplies, utilities,
insurance, etc. The nature of these costs is less variable than materials and
labor, so overhead absorption suffers in periods of quickly declining base.
Management believes that prudent steps were taken to reduce these costs as
market conditions dictated, and this small decline in gross margin compares
favorably to the rest of the industry.
Selling, general and administrative expenses (SG&A) for the year
ended December 31, 2000 were $6.1 million, compared to $6.6 million for 1999, a
decrease of $0.5 million or 7.6%. This reduction was primarily attributed to
lower warranty costs and management's quick reaction to market conditions by
holding these costs down. Despite those actions, the 20% reduction in sales
caused SG&A to increase as a percent of net revenues from 7.9% in 1999 to 9.2%
in 2000.
The Company's continuing operations' effective income tax rate was
38% for the year ended December 31, 2000 as compared with 40% for 1999. The
decrease is primarily due to a decrease in state income taxes in 2000. Basic
and diluted net income per share was $0.73 for the year ended December 31, 2000,
as compared to basic and diluted net income per share of $1.68 in 1999.
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,
2001, the Company had working capital of $14,757,000, compared to $16,600,000 at
December 31, 2000, a $1,843,000 decrease in working capital, which is primarily
attributable to the net cash flows of the discontinued retail operations.
Significant working capital decreases are reflected in a $4,848,000 decrease in
accounts receivable and a $2,398,000 decrease in inventories partially offset by
an increase of $5,214,000 in cash.
Capital expenditures during 2001 were $178,000. Management
anticipates a higher level of capital expenditures in 2002. Cash flows from
financing activities consisted primarily of repayments of short-term notes of
$237,000 and the repurchase of stock on the open market of $102,000. Management
may continue to repurchase and/or retire stock whenever business and market
conditions are favorable to do so.
15
As of December 31, 2001 the Company has a $2,500,000 line of credit
with a bank which can be used for working capital purposes secured by equipment,
inventory, and receivables. The interest rate is the prime rate (4.75% at
December 31, 2001). The line of credit expires September 27, 2003. Under this
line of credit, $283,000 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 workers' compensation
insurance in California. At December 31, 2001, 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 at December 31, 2001.
The Company has a line of credit with a chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.75% at December 31, 2001). All
borrowings are secured by the Ford merchandise. The outstanding balance included
at December 31, 2001 and 2000 was $3,053,000 and $3,555,000 respectively.
The Company anticipates that it will be able to satisfy its ongoing
cash requirements through 2002, including payments related to the expansion
plans at the California facility, primarily with cash flows from operations,
supplemented, if necessary, by borrowings under its revolving credit agreement.
Contractual Obligations and Commercial Commitments
The following table summarizes the Company's obligations and
commitments as of December 31, 2001:
Payments Due by Period (in thousands)
Contractual Cash Obligations Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
Long-Term Debt $705 34 117 90 464
Total Contractual Cash Obligations $705 34 117 90 464
Amount of Commitment Expiration per Period (in thousands)
Other Commercial Total Amounts Less than 1-3 4-5 After
Commitments Outstanding 1 Year Years Years 5 Years
Lines of Credit $3,053 3,053 --- --- ---
Total Commercial Commitments $3,053 3,053 --- --- ---
The Company's contingent liability under the repurchase agreements is
limited to the total unpaid balance (including, in some cases, interest and
other charges) owed to the lending institution by reason of its extension of
credit to the dealer to purchase the Company's motorhomes. The contingent
liability under repurchase agreements varies significantly from time to time,
depending upon shipments and dealer sales to end-users. At December 31, 2001 and
2000, the Company's contingent liability was approximately $23,900,000 and
$26,700,000 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 at the gross margin level,
upon resale of the units.
New Accounting Pronouncements
- -----------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business
Combinations, and Statement of Financial Accounting Standards No. 142 (SFAS No.
142), Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized to earnings, but instead be tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. The amortization of goodwill
ceases upon adoption of SFAS No. 142, which is effective for fiscal years
starting after December 15, 2001.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the Company to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Company also records a
corresponding asset which is depreciated over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation, the
16
obligation will be adjusted at the end of each period to reflect the passage of
time andchanges in the estimated future cash flows underlying the obligation.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS No. 144), Accounting for the Impairment or Disposal of
Long-Lived Assets, which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, it retains many of the fundamental provisions of that
statement. The standard is effective for fiscal years beginning after December
15, 2001.
The Company is required to adopt SFAS No. 142 and SFAS No. 144 on
January 1, 2002 and SFAS No. 143 on January 1, 2003. However, the new
pronouncements are not expected to have an effect on the Company's financial
position or operating performance.
Forward-Looking Statements
- --------------------------
Our statements of our intentions or expectations are "forward-looking
statements" based on assumptions and on facts known to us today. Statements of
our plans, expectations, or sales backlog are forward-looking statements, as
well as other similar statements. Those assumptions will become less valid over
time, but we do not intend to update this report. Rexhall's business is seasonal
and cyclical. Low interest rates, low unemployment, and ready availability of
motor fuel have in the past been associated with favorable recreational vehicle
sales as did occur in 1998 and 1999. Acts of war and terrorism may have a
negative effect on sales. Many of Rexhall's competitors are substantially
larger, and many of its suppliers and dealers also have greater economic power
so that the volume and prices of both supplies and sales may be adversely
affected by them. Management intends to remain aware of these factors and react
to them, but cannot predict their timing or significance.
Item 7A: Quantitative and Qualitative Disclosure about Market Risk
In the ordinary course of its business the Company is exposed to
certain market risks, primarily changes in interest rates. After an assessment
of these risks to the Company's operations, the Company believes that its
primary market risk exposures relating to interest rates (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.
17
Item 8. Financial Statements
Independent Auditor's Report
----------------------------
The Board of Directors
Rexhall Industries, Inc.
We have audited the accompanying consolidated balance sheets of Rexhall
Industries, Inc. and subsidiary as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2001. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rexhall Industries,
Inc. and subsidiary as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Los Angeles, California
March 1, 2002
18
REXHALL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 and 2000
ASSETS 2001 2000
- ------ ---- ----
CURRENT ASSETS
Cash $ 8,662,000 $ 3,448,000
Accounts Receivables, less Allowance
for Doubtful Accounts $102,000 in 2001, and $100,000 in 2000 2,051,000 6,899,000
Income Tax Receivable 786,000 192,000
Inventories 12,546,000 14,944,000
Deferred Income Taxes (Note 6) 964,000 821,000
Other Current Assets 461,000 330,000
Current Assets of Discontinued Operations (Note 14) 4,689,000 7,776,000
------------ ------------
TOTAL CURRENT ASSETS 30,159,000 34,410,000
Property and Equipment at Cost Net
of Accumulated Depreciation (Note 2) 5,760,000 6,035,000
Property Held for Sale (Note 11) 122,000 127,000
Other Assets 151,000 150,000
Non-Current Assets of Discontinued Operations (Note 14) 160,000 210,000
------------ ------------
TOTAL ASSETS $ 36,352,000 $ 40,932,000
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 3,423,000 $ 2,889,000
Line of Credit (Note 3) 3,053,000 3,555,000
Notes Payable and Current Portion of Long-Term Debt (Note 5) 34,000 33,000
Warranty Allowance 699,000 837,000
Accrued Legal (Note 8) 802,000 445,000
Dealer Incentives 1,139,000 732,000
Other Accrued Liabilities 1,376,000 676,000
Accrued Compensation and Benefits 367,000 319,000
Current Liabilities of Discontinued Operations (Note 14) 4,509,000 8,324,000
------------ ------------
TOTAL CURRENT LIABILITIES 15,402,000 17,810,000
Deferred Income Taxes (Note 6) --- 55,000
Long-Term Debt, less Current Portion (Note 5) 671,000 705,000
------------ ------------
TOTAL LIABILITIES 16,073,000 18,570,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock - no par value
Authorized, 1,000,000 shares;
No shares outstanding at December 31, 2001
and December 31, 2000 --- ---
Common Stock - no par value,
Authorized, 10,000,000 shares,
issued and outstanding
3,036,000 at December 31, 2001 and 3,057,000 at 2000 (Note 9) 6,139,000 6,241,000
Loan Receivable from Exercise of Options (Note 4) (46,000) (57,000)
Retained Earnings 14,186,000 16,178,000
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 20,279,000 22,362,000
------------ -------------
Commitments and Contingencies (Notes 3 and 7)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,352,000 $ 40,932,000
============ =============
19
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Net Revenues (Note 10) $ 56,680,000 $ 66,957,000 $ 83,714,000
Cost of Sales 51,584,000 56,493,000 69,659,000
----------- ----------- ----------
Gross Profit 5,096,000 10,464,000 14,055,000
Operating Expenses:
Selling, General and
Administrative Expenses 7,333,000 6,129,000 6,572,000
----------- ----------- ----------
Income (Loss) from Operations (2,237,000) 4,335,000 7,483,000
Interest Income 250,000 274,000 256,000
Interest Expense (181,000) (448,000) (208,000)
Legal Settlement --- --- 604,000
Other Income, net 242,000 200,000 151,000
Gain on Sale of Fixed Assets 26,000 --- 573,000
------------- -------------- ---------
Income (Loss) from Continuing Operations Before
Income Taxes (1,900,000) 4,361,000 8,859,000
Income Tax Expense (Benefit) (Note 6) (603,000) 1,652,000 3,557,000
------------ -------------- -----------
Income (Loss) from Continuing Operations (1,297,000) 2,709,000 5,302,000
Income (Loss) from Discontinued Operations
(net of applicable income tax benefit of $333,000
and $268,000 in 2001 and 2000, respectively) (Note 14) (695,000) (436,000) ---
----------- ------------- -----------
Net Income (Loss) ($1,992,000) $2,273,000 $5,302,000
=========== ============= ===========
Basic and Diluted Income (Loss)
from Continuing Operations - Per Share ($.43) $.87 $1.68
Basic and Diluted Income (Loss)
from Discontinued Operations - Per Share ($.23) ($.14) ---
----------- ------------- -----------
Basic and Diluted Income (Loss) - Per Share ($.66) $.73 $1.68
=========== ============= ===========
Weighted Average Shares Outstanding - Basic and Diluted 3,041,000 3,116,000 3,161,000
----------- ------------- -----------
See accompanying notes to consolidated financial statements
20
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 and 2001
COMMON STOCK LOAN RETAINED
------------ ---------- --------
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
------ ------ ---------- -------- -----
BALANCE, December 31, 1998 3,010,000 $6,788,000 ($421,000) $ 8,603,000 $14,970,000
5% Stock Dividend 151,000 --- --- --- ---
Net Income --- --- --- 5,302,000 5,302,000
--------- ---------- ----------- --------- ----------
BALANCE, December 31, 1999 3,161,000 $6,788,000 ($421,000) $13,905,000 $20,272,000
Repurchase and Retirement of Stock (104,000) (547,000) --- --- (547,000)
Repayment of Loan Receivable
Related to Stock Options --- --- 364,000 --- 364,000
Net Income --- --- --- 2,273,000 2,273,000
---------- ----------- ------------ ---------- -----------
BALANCE, December 31, 2000 3,057,000 $6,241,000 ($57,000) $16,178,000 $22,362,000
Repurchase of Stock (21,000) (102,000) --- --- (102,000)
Repayment of Loan Receivable
Related to Stock Options --- --- 11,000 --- 11,000
Net (Loss) --- --- --- (1,992,000) (1,992,000)
----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 2001 3,036,000 $6,139,000 ($46,000) $14,186,000 $20,279,000
============ ============ ============ =========== ============
See accompanying notes to consolidated financial statements
21
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,992,000) $ 2,273,000 $ 5,302,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
Operating Activities:
Net loss from discontinued operations 695,000 436,000 ---
Depreciation and amortization 376,000 362,000 368,000
Gain on sale of property, plant and equipment (26,000) --- (573,000)
Provision for deferred income taxes (198,000) 169,000 (85,000)
(Increase) decrease in:
Accounts receivable 4,848,000 37,000 (2,341,000)
Inventories 2,398,000 1,560,000 (3,730,000)
Income tax receivable (594,000) (192,000) ---
Increase(decrease) in:
Accounts payable 534,000 (881,000) (1,202,000)
Warranty allowance (138,000) (163,000) 34,000
Accrued legal 357,000 (292,000) (857,000)
Dealer incentives 407,000 (318,000) 220,000
Other assets and liabilities 854,000 295,000 (300,000)
---------- ------------ -------------
Net cash provided by operating activities 7,521,000 3,286,000 (3,164,000)
---------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (178,000) (1,640,000) (643,000)
Proceeds from sale of property and equipment 108,000 --- 1,024,000
Issuance of notes receivable --- (151,000) ---
----------- ------------- --------------
Net cash (used in) investing activities (70,000) (1,791,000) 381,000
----------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (34,000) (30,000) (28,000)
Repayments on short-term notes (237,000) (127,000) (35,000)
Repayment of line of credit (502,000) (3,590,000) 4,159,000
Proceeds from exercise of stock options 11,000 15,000 ---
Repurchase and retirement of stock --- (547,000) ---
Repurchase of stock (102,000) --- ---
---------- ------------ -----------
Net cash (used in) financing activities (864,000) (4,279,000) 4,096,000
---------- ------------ -----------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS (1,373,000) (98,000) ---
NET (DECREASE) INCREASE IN CASH 5,214,000 (2,882,000) 1,313,000
BEGINNING CASH BALANCE 3,448,000 6,330,000 5,017,000
------------ ------------ ---------
ENDING CASH BALANCE $8,662,000 $ 3,448,000 $ 6,330,000
============ ============ =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the year $ 113,000 $ 1,370,000 $ 4,056,000
Interest paid during the year $ 589,000 $ 283,000 $ 183,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Repayment of loan receivable through cancellation of bonus liability --- $ 349,000 ---
Notes payable for insurance policies $ 328,000 $ 223,000 ---
See accompanying notes to consolidated financial statement
22
REXHALL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities - Rexhall Industries, Inc. and subsidiary (the "Company") is
engaged in designing, manufacturing and selling Class A motorhomes. Class A
motorhomes are self-contained and self-powered recreational vehicles used
primarily in conjunction with leisure travel and outdoor activities. The
Company's wholly owned subsidiary, Price I, Inc. dba Price One RV, was a
retailer of Class A motorhomes and other recreational vehicles. In December
2001, the Company ceased its retail operations.
Principles of Consolidation - The consolidated financial statements include the
financial statements of Rexhall Industries, Inc. and its wholly owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Concentration of Credit Risk - Sales are usually made to dealers over a wide
geographic area primarily with 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 receivables 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. Costs include material, labor
and applicable manufacturing overhead. Inventories consist of the following at
December 31, 2001 and 2000:
2001 2000
---- ----
Raw Materials $ 6,041,000 $ 6,555,000
Work-in-Progress 1,363,000 1,825,000
Finished Goods 5,142,000 6,564,000
------------ ------------
Total $12,546,000 $14,944,000
=========== ===========
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation and amortization are computed based on the straight-line
method over the estimated useful lives of the assets, which range from 3 to 31.5
years.
Property held for sale is stated at the lower of cost or fair value less selling
expenses and includes certain property no longer used in the Company's
operation.
Research and Development - Research and development costs were $426,000,
$131,000 and nil in 2001, 2000 and 1999, respectively, and are expensed as
incurred.
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 shown net of repurchases. Revenues are also generated from the
service of motorhomes and from shipment or installation of parts and
accessories.
23
Warranty Reserve Policy - The Company provides retail purchasers of its
motorhomes with a limited warranty against defects in materials and workmanship
for 12 months or 12,000 miles measured from date of purchase, or upon the
transfer of the vehicle by the original owner, whichever occurs first. The
Company's warranty excludes certain specified components, including chassis,
engines and power train, and appliances, which are warranted separately by the
suppliers. The Company estimates warranty reserves required by applying
historical experience with regard to probabilities of failure and cost to
product sales covered by warranty terms. Warranty expense was $1,070,000,
$900,000 and $1,386,000 for the years ended December 31, 2001, 2000 and 1999,
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. The realizability of the deferred tax assets is assessed
throughout the year and a valuation allowance is established accordingly.
Earnings per Share - Basic earnings per share represents net earnings 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. See note 12.
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.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount of fair value less
costs to sell.
Stock Option Plan - The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including FASB Interpretation No. 44, "Accounting for Certain Transactions
involving StockCompensation an interpretation of APB Opinion No. 25" issued
March 2000, to account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation," established accounting and disclosure
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123.
24
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, line of credit, notes
payable and accrued expenses: The carrying amounts approximate the fair values
of these instruments due to their short-term nature.
Line of credit: The fair value of the Company's line of credit approximates
carrying value as it accrues interest at prevailing market rates on a variable
basis.
Long-Term Debt: The fair value of the Company's long-term debt approximates the
current book value based on estimated quotations made on long-term debt
facilities with similar quality and terms.
Reclassifications - Certain reclassifications have been made to the 2000 and
1999 financial statements to conform to the 2001 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2001 and 2000:
Useful Lives
(In years) 2001 2000
---------- ---- ----
Building and Land 5, 31.5 5,937,000 5,910,000
Furniture, Fixtures and Equipment 3-7 1,626,000 1,596,000
Autos and Trucks 3-7 286,000 327,000
---------- -----------
7,849,000 7,833,000
Less: Accumulated Depreciation 2,089,000 1,798,000
---------- -----------
Property and Equipment, net $5,760,000 $6,035,000
========== ===========
3. LINES OF CREDIT
The Company has available a $2,500,000 revolving line of credit with a bank
expiring on September 27, 2003 secured by equipment, inventory, and receivables.
The interest rate is the prime rate (4.75% at December 31, 2001). At December
31, 2001, no amounts were outstanding under this line and $283,000 has been set
aside as an irrevocable standby letter of credit.
The Company has a line of credit with a chassis vendor, Ford Motor Credit
Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.75% at December 31, 2001). All
borrowings are secured by the Ford merchandise. The outstanding balance at
December 31, 2001 and 2000 was $3,053,000 and $3,555,000 respectively.
4. LOANS TO RELATED PARTIES
From time to time the Company made loans to certain officers and key employees
related to the exercise of stock options. During 1998, the Company advanced
$385,000 to key employees under the Company's Incentive and Non-Statutory Stock
Option Plan (The Plan) in exchange for the exercise of 123,000 options. The
loans were full recourse loans and were 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, (5.05% at December 31,
2001). Loans extended for the exercise of incentive stock options are netted
against equity. During 2000, an executive of the company repaid a portion of the
outstanding loans and related accrued interest by foregoing the bonus liability
that was due from the Company. The outstanding balance at December 31, 2001 was
$46,000.
25
In December 2000, the Company and Mr. William J. Rex, President & CEO,
purchased a partially completed building on 1.7 acres in Acton, California for
$401,000. The Company and Mr. Rex each contributed 50% of the purchase price and
will share equally in the final construction of the building on the property.
The Company plans on using its half of the land and building as an off-site
prototype shop, while Mr. Rex intends to use his half for personal endeavors
outside the Company's scope of business. The Company paid $151,000 on behalf of
Mr. Rex in exchange for a $151,000 note receivable. The note is secured by the
executive's interest in the property. The note bears interest at a rate as
defined by Regulation 1.1274-4 of Internal Revenue Code of 1986, (5.05% at
December 31, 2001).
5. NOTES PAYABLE AND LONG-TERM DEBT
2001 2000
---- -----
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 $890,000 at December 31, 2001 $705,000 $738,000
Less: Current Portion 34,000 33,000
-------- --------
Long-Term Portion $671,000 $705,000
======== ========
Future annual minimum principal payments due on long-term debt (including
current portion) as of December 31, 2001 are as follows:
Year Ending December 31,
- -----------------------
2002 $ 34,000
2003 37,000
2004 39,000
2005 41,000
2006 44,000
Thereafter 510,000
---------
$705,000
=========
26
6. INCOME TAXES
The components of income tax expense (benefit) are as follows:
Year Ended December 31,
-------------------------------------------------------
2001 2000 1999
---- ---- ----
Income tax expense (benefit)
excluding discontinued operations ($603,000) $1,652,000 $3,557,000
Income tax (benefit) of discontinued operations (333,000) (268,000) ---
--------- --------- -----------
Total income tax expense (benefit) ($936,000) $1,384,000 $3,557,000
========= ========== ============
Current:
Federal ($788,000) $915,000 $2,884,000
State 50,000 300,000 758,000
---------- ---------- ------------
(738,000) 1,215,000 3,642,000
Deferred:
Federal (105,000) 159,000 (89,000)
State (93,000) 10,000 4,000
---------- ----------- ------------
(198,000) 169,000 (85,000)
---------- ----------- ------------
($936,000) $1,384,000 $3,557,000
========== =========== ============
The components of deferred tax assets (liabilities) at December 31, 2001 and
2000 follows:
2001 2000
---- ----
Current:
Allowance for bad debts $60,000 $40,000
Inventory reserves and unicap 125,000 145,000
Warranty accrual 281,000 332,000
Net operating losses 100,000 ---
Reserve for self insurance 176,000 112,000
Legal reserves 146,000 ---
Other accrued liabilities 151,000 97,000
State tax --- 95,000
---------- --------
$1,039,000 $821,000
Non Current:
Depreciation --- (55,000)
---------- --------
Deferred tax assets $1,039,000 $766,000
========== ========
Less:
Valuation allowance (75,000) ---
Net deferred tax asset $964,000 $766,000
========== ========
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes due to the
following:
Year Ended December 31,
-------------------------------------------------
2001 2000 1999
---- ---- ----
Net income (loss) before income taxes ($1,900,000) $4,361,000 $8,859,000
Statutory federal tax rate 34% 34% 34%
---------- ----------- ----------
Expected tax expense (benefit) (646,000) 1,483,000 3,012,000
State taxes net of federal effect (46,000) 205,000 500,000
Permanent differences 5,000 5,000 36,000
Other adjustments 84,000 (41,000) 9,000
---------- ----------- ----------
Provision for income taxes of continuing operations (603,000) 1,652,000 3,557,000
Provision for income taxes of discontinued operations (333,000) (268,000) ---
---------- ----------- ----------
Provision for income taxes ($936,000) 1,384,000 $3,557,000
========== =========== ==========
27
7. COMMITMENTS AND CONTINGENCIES
Repurchase Agreements - Motorhomes purchased under financing agreements,
with third party lenders, by dealers are subject to repurchase by the Company
under the terms of the financing, at dealer cost and might include unpaid
interest and other costs in the event of default by the dealer. To date,
repurchases have not resulted in significant losses at the gross margin level.
During 2001, the Company repurchased approximately $3,319,000 (wholesale value)
of motorhomes under these agreements. As of December 31, 2001, $862,000 remained
in Finished Goods Inventory.
During 2000, the Company repurchased approximately $4,190,000 (wholesale value)
as a result of its obligations associated with the bankruptcy of its largest
dealer. As of December 31, 2001, the Company had resold all of the repurchased
inventory. Repurchases during 1999 were $1,973,000 (wholesale value).
At December 31, 2001 and 2000 approximately $23,900,000 and $26,700,000,
respectively, of dealer inventory was covered by repurchase agreements. Dealers
do not have the contractual right to return motorhomes under any Rexhall Dealer
Agreement. The repurchase agreements require the dealers to default or file for
bankruptcy. There are also a number of state statutes which require the
repurchasing of motorhomes whenever a dealership is terminated.
Litigation - The Company is a defendant in various legal proceedings resulting
from the normal course of business. In the opinion of Company management, the
resolution of such matters should not have a material effect on its financial
statements or results of operations and have been adequately reserved for.
8. 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 was 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
expired December 31, 2000 while service, parts and labor expired
December 31, 1999. Coupons were 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. 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. At December 31, 2000, the Company has no remaining liability
under the settlement agreement.
9. STOCK INCENTIVE PLAN
The Company had granted stock options under its Incentive and Nonstatutory Stock
Option Plan (the "Plan"), which provided 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 could be granted. Options
granted and outstanding under the Plan expired in five years and became
exercisable and vested in annual increments from two to three years. All stock
options under the Plan were granted at the fair market value of the Company's
common stock at the grant date. The Plan and any options expired May 10, 1999.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for the Plan. Accordingly, no compensation cost
for the Plan was recognized in 1999.
10. SIGNIFICANT CUSTOMERS
There were no customers that comprised over 10.0% of the Company's revenues in
2001. Sohn Corporation operated three Southern California locations and
accounted for 13.8% of the Company's revenue in 2000. The Company had one major
customer, RV World Productions aka RV Supercenter (five Arizona locations), who
accounted for 16% of the Company's net revenues during 1999.
28
11. 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. 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 $573,000, net of executory costs.
At December 31, 2001, the Company's customer service center in Elkhart, Indiana
has remained classified as held for sale. The facility has 1,500 square feet of
office space and a 3,500 square foot warehouse area with a net book value of
$122,000 as of December 31, 2001.
12. EARNINGS PER SHARE
The following is a reconciliation of the basic and diluted earnings per share
computation for the year 2001, 2000 and 1999 (in thousands, except per share
data):
Year ended December 31,
-------------------------------------
2001 2000 1999
---- ---- -----
Net Income (Loss) Used for Basic and
Diluted Earnings Per Share ($1,992) $2,273 $5,302
------- ------ ------
Shares of Common Stock and Common Stock Equivalents:
Weighted Average Shares Used in Basic and Diluted Computation 3,041 3,116 3,161
----- ----- -----
Earnings Per Share:
Basic and Diluted ($.66) $.73 $1.68
------- ------ ------
During the 12 months ended December 31, 2001, the Company repurchased 21,000
common shares on the open market at an average cost of $4.88 per share.
29
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations for fiscal 2001 and 2000 are as follows:
First Second Third Fourth
in thousands, except per share data Quarter Quarter Quarter Quarter
- ----------------------------------- ------- ------- ------- -------
FISCAL 2001:
Net Revenues $15,310 $16,442 $12,673 $12,255
Gross Profit 1,734 1,848 1,255 259
Income (Loss) from Continuing Operations
before Income Taxes 437 355 (828) (1,864)
Income (Loss) from Continuing Operations 262 213 (497) (1,275)
(Loss) from Discontinued Operations, net (143) (81) (158) (313)
Net Income (Loss) 119 132 (655) (1,588)
Basic and Diluted Net Income (Loss) Per Share (1) .04 .04 (.22) (.52)
FISCAL 2000:
Net Revenues $20,559 $14,936 $12,488 $18,974
Gross Profit 3,198 1,878 2,544 2,844
Income from Continuing Operations
before Income Taxes 1,655 655 883 1,168
Income from Continuing Operations 964 360 498 887
(Loss) from Discontinued Operations, net --- --- --- (436)
Net Income 964 360 498 451
Basic and Diluted Net Income Per Share (1) .31 .11 .16 .15
(1) Net income per share amounts for each quarter are required to be computed
independently and may not equal the amount computed for the total year.
30
14. DISCONTINUED OPERATIONS
In December 2001, the Company decided to discontinue its retail operations,
Price One RV in Mesa, Arizona. At the time of discontinuing the retail
operations, the remaining motorhome inventory was sold, at a discount, to
another dealership in Arizona. The fixed assets and parts inventory will be
disposed of in 2002. The Company's financial statements have been restated to
reflect the retail segment as a discontinued operation for all periods
presented.
Following is summary financial information for the Company's discontinued retail
operations:
Years Ended December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Net Sales $15,622,000 $1,745,000 ---
========== ========= ====
Income (Loss) from Discontinued Operations
before Income Taxes (1,028,000) (704,000) ---
Income Tax Benefit (333,000) (268,000) ---
---------- ----------- ----
Net Loss from Discontinued Operations ($695,000) ($436,000) ---
============ =========== ====
As of December 31,
-----------------------------
2001 2000
---- ----
Cash $90,000 ($21,000)
Receivables, net 4,560,000 167,000
Inventories 34,000 7,532,000
Other Current Assets 5,000 98,000
---------- ---------
Current Assets of Discontinued Operations $4,689,000 $7,776,000
========== =========
Property and Equipment at Cost Net of Accumulated Depreciation $158,000 $118,000
Other Assets 2,000 92,000
---------- ---------
Non-Current Assets of Discontinued Operations $160,000 $210,000
========== =========
Accounts Payable $54,000 $1,651,000
Notes Payable 4,455,000 6,605,000
Other Current Liabilities --- 68,000
---------- ----------
Current Liabilities of Discontinued Operations $4,509,000 $8,324,000
========== ==========
31
Schedule 2
Valuation and Qualifying Accounts
Allowance for Doubtful Receivables
BALANCE, December 31, 1998 $150,000
Additions: Charges to Operations (100,000)
Deductions: A/R Write Offs ---
-------------
BALANCE, December 31, 1999 50,000
Additions: Charges to Operations 50,000
Deductions: A/R Write Offs ---
-------------
BALANCE, December 31, 2000 100,000
Additions: Charges to Operations 283,000
Deductions: A/R Write Offs (281,000)
-------------
BALANCE, December 31, 2001 $102,000
=============
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure - None.
32
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, 2002 are as follows:
Name Age Positions Held Director Term
- ---- --- -------------- -------------
William J. Rex (1) 51 Chairman of the Board of Directors, 06/19/86 through
CEO and President 05/31/02
Donald C. Hannay, Sr. 74 Vice President of Sales & Marketing 05/26/93 through
Director 05/31/02
Robert A Lopez (1) (2) 62 Director 05/26/93 through
05/31/02
Frank A. Visco (1) (2) 57 Director 12/17/98 through
5/31/02
Dr. Dennis K. Ostrom (2) 60 Director 7/12/99 through
5/31/02
J. Michael Bourne 38 Executive Vice President
and Chief Operating Officer
Dawn E. Diaz 38 Chief Financial Officer
Cheryl L. Rex 49 Corporate Secretary
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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 and Audit Committee 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. 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.
33
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. 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. 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 is owner of Frank A. Visco & Associates insurance
agency. 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, Mr. Visco was co-owner of Antelope Valley Insurance Agency.
Additionally, during 1978-1982, he was the co-owner of APS Co. Inc., producing
aircraft parts for the aircraft industry. He has owned Frank A. Visco &
Associates Insurance Agency since 1984. In 1980, in addition to his insurance
activities, he began developing properties in Los Angeles and Kern Counties.
Dr. Dennis K. 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. 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.
Mr. J. Michael Bourne comes to Rexhall from his most recent position
as director of Western Region Operations for Grumman Olson, a manufacturer of
commercial delivery trucks. He started his career as a cost accountant with
Vought Aircraft Company in Dallas, TX. He advanced rapidly through the financial
organization, which ultimately led to him becoming the Director of Finance for
Grumman Olson in 1995 while Vought Aircraft and Grumman Olson were parts of
Northrop Grumman. Mr. Bourne graduated from the University of Southern
Mississippi in 1987 with a degree in Accounting and a minor in Computer Science.
He received his MBA from the University of Chicago in 1999. Mr. Bourne is also a
Certified Public Accountant.
Ms. Dawn E. Diaz earned her degree in Business, with an emphasis in
Accounting, from California State University, Northridge. Ms. Diaz began her
public accounting career with KPMG International where she earned her Certified
Public Accountant license. She has spanned many facets of the accounting field
in industries ranging from entertainment to high-tech. Ms. Diaz comes to Rexhall
from her most recent position as Vice President of Finance for Bertelsmann
Services, Inc., a manufacturing and distribution company.
Mrs. Cheryl L. Rex is the Corporate Secretary of Rexhall Industries
Inc. She has been with the Company since its inception in June 1986, and is the
spouse of William J. Rex. From the beginning, Mrs. Rex has also undertaken the
responsibility of designing the interiors of the motorhomes, both in decor and
function, as well as assisting in the production of the Company's product
brochures. She has served in several capacities throughout the years including
payroll and administration. Mrs. Rex is involved in the organization of the
Company's annual rallies and outside employee functions and is editor of the
Rexhall Newsletter.
34
Item 11. Executive Compensation
Cash Compensation
The following table sets forth certain information as to the five
highest paid(1) of the Company's employees whose cash compensation exceeded
$100,000 for the year ended December 31, 2001:
SUMMARY COMPENSATION TABLE
Annual Compensation
Bonus
Name and Accrued Other Annual
Principal Position Year Salary ($) Bonus Paid Non-Paid Compensation (2)
- ------------------ ---- ---------- ---------- -------- ----------------
William J. Rex 01 237,100(3) 150,100 --- ---
Chief Executive Officer 00 250,000 See Note (4) 5,000 ---
and President 99 250,000 445,000 411,000 ---
J. Michael Bourne(6) 01 118,700 --- --- ---
Executive Vice President
and Chief Operating Officer
Donald C. Hannay, Sr. 01 66,100 123,400 5,800 ---
V.P. of Sales & Marketing 00 62,800 161,800 12,400 ---
99 61,400 201,600 20,700 ---
James C. Rex (5) 00 52,000 54,000 --- ---
National Director of
Service and Warranty
(1) Note: Only three 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 2001 did not exceed, as to any named
officer, the lesser of $50,000 or 10% of the total 2001 salary and bonus
paid to such named officer and, accordingly, is omitted from the table.
These benefits included amounts allocated for personal use of a
company-owned automobile provided to Mr. Rex.
(3) Immediately following the tragic events of September 11, 2001, William J.
Rex took a 20% pay cut which is still in effect. The rest of the officers
took 10% pay cuts which were reinstated in December 2001.
(4) For 2000, William J. Rex earned a bonus of $491,000 of which he was paid
$486,000 leaving $5,000 in the accrued bonus account. Mr. Rex used $384,000
of accrued bonus from 1999 to repay a loan, with interest, the Company made
to him in 1998 under the Company's Stock Option Program. The remaining
$27,000 of the $411,000 accrued bonus from 1999 was paid to Mr. Rex in
2000. All combined, Mr. Rex was paid $513,000 in cash for 1999 and 2000
bonuses in 2000, while he used another $384,000 to repay the loan with
interest.
(5) Mr. James C. Rex is the brother of Mr. William J. Rex. Mr. James Rex has
been employed by the Company for nine years; 2000 was the only year that
his salary exceeded $100,000.
(6) Mr. Bourne joined the Company in February 2001.
35
Compensation Committee Report
- -----------------------------
On July 5, 2001, the Company renewed for five years (expires July 31,
2006) 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 and
Audit Committee Meeting; 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 Plan 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 was 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
was transferable by the optionee other than by will or the laws of descent and
distribution, and each option was exercisable during the lifetime of the
optionee only by such optionee.
The exercise price of all stock options granted under the Option Plan
must have been 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 have been 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 were not authorized under the Option Plan.
The Company's Stock Option Plan and any options expired May 10, 1999.
36
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 of March 15, 2002:
Number of
Name of Beneficial Owner Shares Percent of
Outstanding Beneficially Shares at
or Identity of Group Owned (1) March 15, 2002
- -------------------- --------- --------------
William J. Rex (1) 1,623,000 53.1%
c/o Rexhall Industries
46147 7th Street West
Lancaster, California 93534
All Directors and
Officers as a Group 1,673,000 54.7%
(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. Purchases during 2001
and 2000 were less than $25,000 and $100,000, respectively.
37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K
Financial Statements
- --------------------
See Item 8
Financial Statement Schedule
- ----------------------------
Schedule 2 - Valuation and Qualifying Accounts Page 32
Schedules not listed above have been ommitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
(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) Business Loan Agreement dated September 27, 2001 between Company and
Valencia Bank and Trust.
(10.2) Employee agreement of William J. Rex
(10.3) Authorized Ford Motor Company Converter Pool Agreement effective 5/24/90.
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 2001
2) 2001 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 2000)
(27.0) Financial Data Schedule
(28.0) Copy of State Insurance Annual Report for year ended 12/31/00 labeled
(Exhibit 28).
38
Signatures
Pursuant to the requirements of section 13 or 5(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Rexhall Industries, Incorporated
- --------------------------------
(Registrant)
By /S/ William J. Rex By /S/
----------------------- ---------------
(Signature and Title)* (Signature and Title)*
William J. Rex, President, CEO & Chairman Dawn E. Diaz, CFO
Date: March 29, 2002 Date: March 29, 2002
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 29, 2002
By /S/ Donald C. Hannay, Sr.
- ----------------------------
(Signature and Title)*
Donald C. Hannay, Sr.
Vice President of Sales & Marketing
Director
Date: March 29, 2002
By /S/ Robert A. Lopez
- --------------------------------
(Signature and Title)*
Robert A. Lopez
Director
Date: March 29, 2002
By /S/ Frank A. Visco
- ---------------------------------
(Signature and Title)*
Frank A. Visco
Director
Date: March 29, 2002
By /S/ Dr. Dennis K. Ostrom
- -----------------------------
(Signature and Title)*
Dr. Dennis K. Ostrom
Director
Date: March 29, 2002
39