UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2002
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
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REXHALL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
California 95-4135907
(State or other jurisdiction of Incorporation or (IRS Employer
organization) Identification No.)
46147 7th Street West
Lancaster, CA 93534
(Address of principal executive offices)
Registrant's telephone number, including area code: (661) 726-0565
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange on which registered: None
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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Aggregate market value of the voting and non-voting common stock held by
non-affiliates computed by reference to the price at which the common stock was
last sold, or the average bid and asked price of such common stock, as of the
last business day of the Registrant's most recently completed second fiscal
quarter - $15,483,900 (As of June 28, 2002).
As of April 15, 2003 there were 5,912,700 shares of the Registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: A portion of the Company's Definitive
Proxy Statement to be
1
filed on or before April 30, 2003 is incorporated by reference in Part III
of this Report.
TABLE OF CONTENTS
PART I. PAGE
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Date 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers of the Registrant 35
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Matters Owners and Management and Related Stockholder 38
Item 13. Certain Relationships and Related Transactions 39
PART IV
Item 14. Controls & Procedures 40
Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K 40
2
PART I
Item 1. Business
Rexhall Industries, Inc. (the "Company") designs, manufactures and
sells to dealers 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 and has not engaged in retail
operations since then. The Company has reported the retail operations as a
discontinued operation, and the subsidiary is no longer operational. However,
the Company continues to operate a service facility under the name Rexhall
Service Center - Arizona at that location.
The Company began operations in July 1986 as a general partnership and
conducted business in that form until December 31, 1986, when the assets and
business of the partnership were contributed to Rexhall Industries, Inc., a
California corporation, which assumed the liabilities of the partnership.
Rexhall Industries, Inc. was incorporated in California in June 1986, but except
for organizational activities, conducted no operations until January 1, 1987. As
used herein, the "Company" refers to Rexhall Industries, Inc. and subsidiary.
The following are trademarks of the Company: Rexhall(R), RoseAir,
RexAir(R), Aerbus, Vision(R), American Clipper, Anthem, Concord, Minibus, and
EntrySlide.
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 Motor Co., Workhorse Custom Chassis
LLC and Spartan Motors Chassis, Inc.). The interior of the completed vehicle
typically includes a kitchen and bathroom, as well as drivers, dining and
sleeping areas. Class A motorhomes are self-contained with their own electrical
generation, 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
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 hybrid, and are generally differentiated by the
method and vehicle employed for towing, size configuration and use. Other
recreational vehicle categories include folding camping trailers, park trailers,
truck campers, and van conversions.
As Class A motorhomes are self-contained with kitchen, bathroom
facilities and sleeping quarters, it is eligible
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to be treated as a "qualified residence" under the Internal Revenue Code of
1986, as amended. Thus, as in the case of other recreational vehicles suitable
for overnight use, a purchaser may generally deduct interest on debt incurred to
acquire a Class A motorhome provided the purchaser designates and uses it as one
of no more than two residences and otherwise meets the requirements of the
Internal Revenue Code of 1986.
Industry
Based on information furnished in February 2003 by the 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, 2002, 2001 and 2000:
% Change % Change
Unit From Prior Revenues From Prior
Sales Year (000) Year
----- ---- ----- ----
Total Recreational Vehicles
2002 378,700 18.0% $10,868,487 24.1%
2001 321,000 (23.3%) $ 8,760,483 (20.8%)
2000 418,300 (11.7%) $11,055,173 (11.2%)
Class A Motorhomes
2002 39,600 18.6% $ 4,302,382 23.4%
2001 33,400 (18.5%) $ 3,486,492 (9.5%)
2000 41,000 (17.0%) $ 3,854,123 (12.3%)
Rexhall Industries, Inc.
2002 763 5.2% $ 63,303 11.7%
2001 725 (20.3%) $ 56,680 (15.3%)
2000 910 (27.1%) $ 66,957 (21.0%)
Approximately 77 million Americans were born between the years of 1946
and 1964. Commonly known as "baby boomers", the Company believes that baby
boomers have been the historical group of potential Class A motorhome
purchasers. Although the typical Class A motorhome buyers are over the age of
60, increasing disposable income in the 40 to 60 year old age group is expanding
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 the 40 year old and greater population indicates the future growth
potential of the Company's target market.
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
panels for the sidewalls, and molded fiberglass front caps, rear caps and roofs,
which are construction techniques used in more expensive motorhomes and
eliminating many of the seams commonly found in most motorhomes. Fiberglass is
generally easier to repair collision marks and scrapes than aluminum, which is
the other material commonly used in sidewall construction. The Company uses
polyurethane foam and polystyrene for insulation.
The Company's motorhomes are built with attention to aerodynamics, by using
a streamlined bus-style front cap that tapers to a width broader at the junction
with the sidewalls than at the leading edge of the nose. This styling, coupled
with rounded corners throughout the coach, contributes to a smooth ride, even in
high winds or when
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large trucks or trailers pass the motorhome.
The Company currently offers five lines of Class A motorhomes: RoseAir,
RexAir, Aerbus, American Clipper and Vision.
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 40 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 approximately twelve feet.
In addition to size of chassis, RoseAir, RexAir, Aerbus, American
Clipper and Vision 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, a three-burner range with automatic pilot
light, a large two-bowl kitchen sink, a toilet, a fiberglass shower surround, a
bathroom sink, coordinating designer accents, and day/night shades. Additional
standard equipment includes a television with antenna, an AM/FM stereo radio
with cassette player, auxiliary power generators, a microwave oven, roof air
conditioners, and a 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, entertainment center, satellite
dish, patio awning, ducted roof air conditioning, dual-pane windows, and a
simulated fireplace. Some models may vary in standard equipment.
The suggested retail prices of the Company's diesel models range from
$146,000 to $204,000 with standard equipment, while the suggested retail prices
for the Company's gas models range from $75,000 to $122,000 with standard
equipment.
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. Some of the Company's
specialty units are also modified to be wheelchair accessible. During 2002,
2001, and 2000, 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, in an effort to achieve uniformity, a partial steel cage is pre-assembled
on a jig. The steel cage is welded together on the jig, which is 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.
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Seamless, gel-coated fiberglass is vacuum bonded to a steel frame to
form the exterior walls. Additionally, the roof structure 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, cabinetwork, 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,
cabinetwork, 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 63
units per month during 2002. Total gross units produced in 2002 were 753 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 (Workhorse). Rear-engine diesel chassis are purchased from Spartan
Motors Chassis (Spartan). 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 prime rate plus 1%
(5.25% at December 31, 2002) and is secured by the Ford chassis obtained. 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 terms of sale for the chassis purchased from Spartan and
Workhorse are on net 30-day bases.
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's business and financial results could be materially
adversely affected.
Sales and Distribution
The Company sells motorhomes in most of the states in the continental
United States. Additionally, the Company sells to dealers in Canada and Europe.
Sales outside the U.S. were less than $1 million. Consistent with industry
practice, most of the Company's dealers also stock previously owned recreational
vehicles and carry recreational vehicles manufactured by competitors. For
information on sales to dealers accounting for 10 percent or more of the
Company's total net revenues, see note 8 to Notes to consolidated financial
statements.
Sales are usually made to dealers on terms requiring payments within
ten days or less of the dealer's receipt of the
6
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 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 to the Company, 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 consumers. At December 31, 2002 and
2001, the Company's contingent liability was approximately $28,900,000 and
$23,900,000 respectively. The risk of loss under these agreements is spread over
numerous dealers and financing institutions and is further reduced by the resale
value of any motorhomes that may be repurchased. To date, the Company's losses
under these repurchase agreements have been minimal.
Advertising and Promotion
The Company advertises its motorhomes to consumers in recreational
vehicle magazines and to dealers in trade publications, and uses
point-of-purchase promotional materials. Its promotional activities generally
consist of participation at major recreational vehicle 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
vehicle 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, 2002, 2001 and 2000, the Company's backlog of dealer orders, which it
believed were firm, was $4,205,000, $15,133,000 and $6,351,000 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 $1,904,000, $1,070,000 and $900,000 for the years ended
December 31, 2002, 2001, and 2000 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.
Competition and Other Business Risks
Competition in the manufacture and sale of motorhomes and other
recreational vehicles is intense. The Company
7
has been manufacturing Class A motorhomes for 16 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, as
well as larger and more developed dealer networks.
The Company, like others in the recreational vehicle industry, is
dependent upon the availability of chassis from Ford, Workhorse and Spartan, and
upon terms of financing to dealers and retail purchasers. Some competitors also
purchase diesel chassis from Freightliner Custom Chassis, while some manufacture
their own diesel chassis.
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 fuel, 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
This Annual Report on Form 10-K includes certain statements that are
"forward looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934
as amended. These forward looking statements involve uncertainties and risks.
There can be no assurance that actual results will not differ from the Company's
expectations. Factors which could cause materially different results include,
among others, the success of new product introductions, increases in materials
costs, pricing pressures 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 there
have been 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. We disclaim any obligation or undertaking to disseminate any
updates or revisions to any forward looking statements contained in this Annual
Report on Form 10-K or to reflect any change in our expectations after the date
of this Annual Report on Form 10-K or any change in events, conditions or
circumstances on which any statement is based, except as required by law.
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.
8
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 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 does not have any patents that are material to its current
business. The Company claims Rexhall(R), RoseAir, RexAir(R), Aerbus, Vision(R),
American Clipper, Anthem, Concord, Minibus, and EntrySlide as trademarks, but
believes its business is not dependent on these names or any other marketing
device.
Employees
At December 31, 2002, the Company had a total of 322 employees. None of
the Company's employees are 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.
This facility 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 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 almost 120,000 square
feet. The Lancaster manufacturing plant is debt free with no mortgages on the
facility.
In September 1995, the Company purchased a 40,000 square foot facility
located on a 4.5-acre site in Lancaster, California to serve as the Company's RV
Service Center. This facility was purchased from the City of Lancaster's
Redevelopment Agency for $980,000. At December 31, 2002, the Company was
indebted to the City of Lancaster Redevelopment Agency for an amount of $670,000
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 various third
parties, which were major RV retail dealers. Since June 2001, the Company has
been using that portion to perform additional retail service and insurance paid
repairs to motorhomes.
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 was classified as held for sale with a net book value of $122,000. It
was sold in 2002 for a net selling price of $159,000.
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
9
prototype shop, while Mr. Rex intends to use his half for personal
endeavors outside the Company's scope of business.
In January 2003, the Company completed the purchase of 12.5 acres of
land adjacent to its headquarters in Lancaster, California. The Company paid
$564,448 in cash and issued a promissory note for $300,000. The agreement with
the City of Lancaster will allow for the promissory note to be forgiven in total
or in part based upon a formula for providing jobs. The Company plans to build a
new facility on this land so that it can produce its own diesel chassis with a
new motorhome concept to be built on that chassis.
The Company believes its facilities are adequate to meet its
foreseeable needs for its current product offerings.
Item 3. Legal Proceedings
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 will not have a material effect on its financial
statements or results of operations and have been adequately reserved for.
The Company has been contacted by the staff of the Securities and
Exchange Commission, which has indicated that it is reviewing the facts leading
up to the Company's restatement of its results of operations for the first
quarter ended March 31, 2002. The Company has indicated that it would cooperate
fully with the staff's review and has been doing so.
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 2002.
10
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 2000 according to NASDAQ (adjusted for the 2-for-1 stock split
of July 2002):
2002 High Low
---- ---- ---
Fourth Quarter $ 3.90 $ 2.38
Third Quarter 5.99 1.51
Second Quarter 6.10 3.78
First Quarter 4.30 2.50
2001 High Low
---- ---- ---
Fourth Quarter $ 4.37 $ 2.01
Third Quarter 3.38 2.09
Second Quarter 3.09 2.31
First Quarter 3.25 2.35
Holders
At April 15, 2003, the Company had 60 registered shareholders of
record.
Dividends
The payment of cash dividends on the Company's common stock is within
the discretion of its board of directors. Currently, the Company intends to
retain earnings, if any, to finance its business. The Company has not paid cash
dividends on its common stock and the board of directors does not expect to
declare cash dividends on the common stock in the foreseeable future.
Securities Authorized Under Equity Compensation Plans
The Company has no compensation plans or individual compensation
arrangements under which equity securities are authorized for issuance.
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, 1998 through December 31, 2002. The
financial information as of and for each of the five years in the period ended
December 31, 2002 were derived from audited financial statements of the Company.
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Statement of Operations Data:
(in thousands, except share and per-share data)
Year Ended December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net Revenues $63,303 $56,680 $66,957 $83,714 $71,454
Cost of Goods Sold 56,424 51,584 56,493 69,659 59,314
-------- ------- -------- ------ ------
Gross Profit 6,879 5,096 10,464 14,055 12,140
Selling, General and Administrative Expenses 8,278 7,333 6,129 6,572 6,749
Restructuring Charge ----- ----- ----- ----- (282)
-------- ------- -------- ------ -------
Income (Loss) from Operations (1,399) (2,237) 4,335 7,483 5,673
Interest Income 56 250 274 256 157
Interest Expense (144) (181) (448) (208) (101)
Legal Settlement ----- ----- ----- 604 -----
Other Income, net ----- 242 200 151 135
Gain on Sale of Fixed Assets 34 26 ----- 573 -----
-------- ------- -------- ------ -------
Income (Loss) from Continuing Operations
before Income Taxes (1,453) (1,900) 4,361 8,859 5,864
Income Taxes Expense (Benefit) (526) (603) 1,652 3,557 2,474
--------- -------- -------- ------ -------
Income (Loss) from Continuing Operations (927) (1,297) 2,709 5,302 3,390
Income (Loss) from Discontinued Operations
(net of applicable income tax benefit of $333
and $268 in 2001 and 2000, respectively) ----- (695) (436) ----- -----
Loss on Disposal of Discontinued Operations
(net of applicable income tax benefit of $5) (8) ----- ----- ----- -----
--------- --------- -------- ------ -------
Net Income (Loss) ($ 935) ($ 1,992) $ 2,273 $5,302 $ 3,390
========== ========= ========= ====== =======
Net Income (Loss)
from Continuing Operations - per share - Basic ($ 0.15) ($ 0.21) $ 0.43 $ 0.84 $ 0.54
------------ ---------- ---------- --------- --------
Net Income (Loss)
from Continuing Operations - per share - Diluted ($ 0.15) ($ 0.21) $ 0.43 $ 0.84 $ 0.54
------------ ---------- ---------- --------- --------
Net Income (Loss)
from Discontinued Operations - per share - Basic ----- ($ 0.12) ($ 0.07) ----- -----
--------- ---------- ----------- --------- -------
Net Income (Loss)
from Discontinued Operations - per share - Diluted ----- ($ 0.12) ($ 0.07) ----- -----
--------- ---------- ----------- --------- -------
Net Income (Loss) - per share - Basic ($ 0.15) ($ 0.33) $ 0.36 $ 0.84 $ 0.54
------------ ---------- ---------- --------- ---------
Net Income (Loss) - per share - Diluted ($ 0.15) ($ 0.33) $ 0.36 $ 0.84 $ 0.54
------------ ---------- ---------- --------- ---------
Weighted Average Shares Outstanding - Basic 6,077,000 6,082,000 6,232,000 6,322,000 6,236,000
---------- --------- ---------- --------- ---------
Weighted Average Shares Outstanding - Diluted 6,077,000 6,082,000 6,232,000 6,322,000 6,280,000
---------- --------- --------- --------- ---------
Balance Sheet Data:
(in thousands) As of December 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Working Capital $14,581 $14,757 $16,600 $16,289 $10,769
Total Assets 29,951 36,352 40,932 36,162 28,449
Long Term Debt Less Current Portion 634 671 705 737 767
Shareholders Equity $19,157 $20,279 $22,362 $20,272 $14,970
12
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,
2002 2001 2000
---- ---- ----
Net Revenues 100% 100.0% 100.0%
Cost of Goods Sold 89.1 91.0 84.4
------- ------- -------
Gross Profit 10.9 9.0 15.6
Selling, General and Administrative Expenses 13.1 12.9 9.2
------- ------- -------
Income (Loss) from Operations (2.2) (3.9) 6.4
Other Income (Expense), net (0.1) 0.5 0.1
-------- ------- -------
Income (Loss) from Continuing Operations Before Income Taxes (2.3) (3.4) 6.5
Income Tax Expense (Benefit) (0.8) (1.1) 2.5
-------- ------- -------
Income (Loss) from Continuing Operations (1.5) (2.3) 4.0
Income (Loss) from Discontinued Operations, net ----- (1.2) (0.6)
------- ------- --------
Net Income (Loss) (1.5%) (3.5%) 3.4%
======= ======= ========
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,
consumer confidence levels, 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.
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, the Company was
only obligated to repurchase $1.2 million of inventory; however, the Company
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. In December 2001,
the Company ceased its retail operations and sold the remaining Price One
inventory to another dealership in Arizona. The Company has reported the retail
operations as a discontinued operation, and the subsidiary is no longer
operational. However, the Company continues to operate a service facility under
the name Rexhall Service Center - Arizona at that location.
The last few years have been very challenging for the Class A motorhome
industry. Approximately 49,400 Class A motorhomes were wholesaled in 1999, which
was an all-time high. However, when the stock market started to slide in the
spring of 2000, Class A motorhome shipments 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. The industry rebounded by
19% in 2002 to 39,600 units shipped.
Management believes the Company's $14.6 million of working capital is
strong, which includes $5.8 million in cash. Management expects operating cash
flows to be sufficient to finance the Company's 2003 operational needs and
complete its research and development projects, especially when considering the
increase level of chassis inventory the Company is starting with in 2003. The
increase in chassis inventory from the relatively low levels at the December 31,
2001 to December 31, 2002 accounted for most of the operating cash usage. The
Company is also planning on minimal borrowings for the
13
construction of the new plant, but business and market conditions might
arise that make borrowing more prudent.
Result of Operations
Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001
Net revenues for the year ended December 31, 2002, were $63.3 million,
compared to $56.7 million for 2001, an increase of $6.6 million or 12%. The
number of units shipped, net of repurchased units, increased 38 to 763 in 2002
from 725 in 2001, an increase of 5%. The average net selling price increased
approximately 6% during the period due to a higher mix of diesel and large gas
units. Wholesale unit shipments of the Company's gas and diesel motorhomes were
up 3% and 10%, respectively, when compared to 2001.
Poor RV industry fundamentals of weakened consumer confidence and
tightening of credit continue to hinder the Company's efforts in attracting
large dealers east of the Rockies. The lack of new dealers was the primary
cause for the Company to lag behind the industry's 19% improvement in shipments
during 2002. Management cannot determine when these conditions will improve.
Gross profit for the year ended December 31, 2002 increased to $6.9
million from $5.1 million for 2001, an increase of $1.8 million or 35%. The
gross margin for 2002 was 10.9% as compared to 9.0% for 2001. The primary
drivers of the increase in gross profit were higher sales and lower discounts
and incentives, partially offset by higher direct labor cost per unit. The
Company's gross margin may fluctuate in future periods if the mix of Class A
motorhomes the Company produces shifts from higher to lower gross margin units
or if the Company encounters unexpected manufacturing difficulties or
competitive pressures.
Selling, general and administrative expenses (SG&A) for the year ended
December 31, 2002 were $8.3 million, compared to $7.3 million for 2001, and
increased as a percentage of sales from 12.9% to 13.1% due to an increase in
SG&A expenses. The increase in expenses is primarily related to the
approximately $850,000 the Company spent on outside firms during the independent
investigation into the restatement of its first quarter's 10-Q.
Other income in 2001 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, so no rental income was
earned in 2002.
The Company's continuing operations' effective income tax rate was 36%
for the year ended December 31, 2002 as compared with 32% for 2001. The increase
is a result of certain non-deductible expenses being incurred in 2001. Basic and
diluted net loss per share was ($0.15) for the year ended December 31, 2002, as
compared to basic and diluted net loss per share of ($0.33) in 2001.
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, 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 185 to 725 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.
14
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 2000 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.
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 loss per share was ($0.33) for the year ended December 31, 2001, as
compared to basic and diluted net income per share of $0.36 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". The disposition of the net assets in 2002 of the
discontinued operation is presented as "Loss on Disposal of Discontinued
Operations".
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,
2002, the Company had working capital of $14,581,000, compared to $14,757,000 at
December 31, 2001, a $176,000 decrease in working capital. The most significant
working capital decrease was a $2,905,000 decrease in cash partially offset by
an increase of $2,503,000 in inventories.
Capital expenditures during 2002 were $171,000. Management anticipates
a higher level of capital expenditures in 2003. Cash flows from financing
activities consisted primarily of repayments of short-term notes of $248,000 and
the repurchase of stock on the open market of $233,000, partially offset by
proceeds from chassis vendor line of credit of $328,000. Management might
continue to repurchase and/or retire stock whenever business and market
conditions are favorable to do so.
As of December 31, 2002, 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 (4.25% at
December 31, 2002). The line of credit expires September 27, 2003. Under this
line of credit, $711,000 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, 2002, 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, 2002.
The Company has a line of credit with a chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $5,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.25% at December 31, 2002). All
borrowings are secured by the Ford merchandise. The outstanding balance included
at December 31, 2002 and 2001 was $3,381,000 and $3,053,000 respectively.
The Company anticipates that it will be able to satisfy its ongoing
cash requirements through 2003 primarily with cash flows from operations,
supplemented, if necessary, by borrowings under its revolving credit agreement.
The increase in
15
chassis inventory from the relatively low levels at the December 31, 2001
to December 31, 2002 accounted for most of the operating cash usage, and the
Company does not anticipate having to increase chassis inventories in 2003.
Depending on market and economic conditions, the Company might consider
financing part or all of the new facility related to the new motorhome and
diesel chassis concept.
Contractual Obligations and Commercial Commitments
The following table summarizes the Company's obligations and
commitments as of December 31, 2002:
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 $670 36 117 90 464
- ---------------------------------------- ----------- ----------------------- ------------------ ----------------- ------------------
- ---------------------------------------- ----------- ----------------------- ------------------ ----------------- ------------------
Total Contractual Cash Obligations $670 36 117 90 464
- ---------------------------------------- ----------- ----------------------- ------------------ ----------------- ------------------
Amount of Commitment Expiration per Period (in thousands)
- --------------------------------------- ------------------------------ ----------------- ------------- ------------ ----------------
Other Commercial Total Amounts Outstanding Less than 1-3 4-5 After
Commitments 1 Year Years Years 5 Years
- --------------------------------------- ------------------------------ ----------------- ------------- ------------ ----------------
- --------------------------------------- ------------------------------ ----------------- ------------- ------------ ----------------
Lines of Credit $3,381 3,381 --- --- ---
- --------------------------------------- ------------------------------ ----------------- ------------- ------------ ----------------
- --------------------------------------- ------------------------------ ----------------- ------------- ------------ ----------------
Total Commercial Commitments $3,381 3,381 --- --- ---
- --------------------------------------- ------------------------------ ----------------- ------------- ------------ ----------------
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, 2002 and
2001, the Company's contingent liability was approximately $28,900,000 and
$23,900,000 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.
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 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
16
Company specifically reserves the gross margin for known repurchase
obligations quarterly and at fiscal year end. The Company also reserves for
dealer sales incentives, which are netted against revenues. 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.
Warranty Costs - The Company provides an estimate for accrued warranty
costs at the time a product is sold. This estimate is based on historical
average repair costs, as well as other reasonable assumptions as have been
deemed appropriate by management.
New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 (SFAS No. 145), Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB No. 13 and Technical
Corrections. The Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, which required all gains and losses from extinguishment
of debt to be aggregated and classified as an extraordinary item (net of related
income tax effect), if material. The criteria in APB Opinion No. 30 will now be
used to classify those gains and losses. Also SFAS No. 64 amended SFAS No. 4 and
is no longer necessary because of this rescission.
In July 2002, the FASB issued Statement No. 146, Accounting for Exit or
Disposal Activities. The Statement was the second and final phase of the project
to replace SFAS No. 121 and focuses on the accounting for costs associated with
a disposal activity. The first phase was completed in August 2001 with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. The
Statement will be effective for disposal activities initiated after December 31,
2002, with early application encouraged.
In October 2002, the FASB issued Statement No. 147, Acquisitions of
Certain Financial Institution. The Statement applies to all acquisitions except
those between mutual enterprises (which will be a separate project). The
guidance related to (1) the application of the purchase method of accounting, is
effective for acquisitions for which the date of acquisition is on or after
October 1, 2002 and (2) accounting for the impairment or disposal of certain
long-term customer-relationship intangible assets is effective on October 1,
2002.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies the requirements
of SFAS No. 5, Accounting for Contingencies, relating to a guarantor's
accounting for, and disclosure of, the issuance of certain types of guarantees.
For certain guarantees issued after December 31, 2002, FIN 45 requires a
guarantor to recognize, upon issuance of a guarantee, a liability for the fair
value of the obligations it assumes under the guarantee. Guarantees issued prior
to January 1, 2003, are not subject to liability recognition, but are subject to
expanded disclosure requirements. The disclosure requirements of FIN 45 are
effective immediately and are included in Note 7. The initial recognition and
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The Company has not yet determined
what effect, if any, the new recognition and measurement provisions will have on
the Company's future financial results.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS No. 148), amending FASB Statement No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
17
The Company is required to adopt SFAS No. 143 and 146 on January 1,
2003. However, the new pronouncements are not expected to have an effect on the
Company's financial position or operating performance.
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.
18
Item 8. Financial Statements
Independent Auditor's Report
The Board of Directors
Rexhall Industries, Inc.
We have audited the accompanying consolidated balance sheet of Rexhall
Industries, Inc. and subsidiary as of December 31, 2002, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. In connection with our audit 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 financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 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, 2002, and the result of their operations
and their cash flows for the year then ended 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/ BECKMAN KIRKLAND & WHITNEY
Agoura Hills, California
March 26, 2003
19
Independent Auditor's Report
The Board of Directors
Rexhall Industries, Inc.
We have audited the accompanying consolidated balance sheet of Rexhall
Industries, Inc. and subsidiary as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two-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 schedules 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 the results of their operations
and their cash flows for each of the years in the two-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
20
REXHALL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 and 2001
ASSETS 2002 2001
- ------ ---- ----
CURRENT ASSETS
Cash $ 5,757,000 $ 8,662,000
Accounts Receivables, less Allowance
for Doubtful Accounts of $103,000 in 2002 and $102,000 in 2001 2,251,000 2,051,000
Income Tax Receivable 360,000 786,000
Inventories 15,049,000 12,546,000
Deferred Income Taxes (Note 6) 1,003,000 964,000
Other Current Assets 139,000 461,000
Current Assets of Discontinued Operations (Note 12) 182,000 4,689,000
----------- -----------
TOTAL CURRENT ASSETS 24,741,000 30,159,000
Property and Equipment at Cost Net
of Accumulated Depreciation (Note 2) 5,021,000 5,760,000
Property Held for Sale (Note 9) ------- 122,000
Other Assets ( Note 4) 152,000 151,000
Non-Current Assets of Discontinued Operations (Note 12) 37,000 160,000
----------- -----------
TOTAL ASSETS $29,951,000 $36,352,000
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 1,622,000 $ 3,423,000
Chassis Vendor Line of Credit (Note 3) 3,381,000 3,053,000
Notes Payable and Current Portion of Long-Term Debt (Note 5) 36,000 34,000
Warranty Allowance 991,000 699,000
Accrued Legal (Note 7) 1,250,000 802,000
Dealer Incentives 638,000 1,139,000
Other Accrued Liabilities 1,750,000 1,376,000
Accrued Compensation and Benefits 472,000 367,000
Current Liabilities of Discontinued Operations (Note 12) 20,000 4,509,000
----------- -----------
TOTAL CURRENT LIABILITIES 10,160,000 15,402,000
Long-Term Debt, less Current Portion (Note 5) 634,000 671,000
----------- -----------
TOTAL LIABILITIES 10,794,000 16,073,000
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock - no par value
Authorized, 1,000,000 shares;
No shares outstanding at December 31, 2002
and December 31, 2001 ------- -------
Common Stock - no par value,
Authorized, 10,000,000 shares,
issued and outstanding
6,038,000 at December 31, 2002 and 6,095,000 at 2001 5,906,000 6,139,000
Loan Receivable from Exercise of Options (Note 4) ------- (46,000)
Retained Earnings 13,251,000 14,186,000
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 19,157,000 20,279,000
----------- -----------
Commitments and Contingencies (Notes 3 and 7)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,951,000 $36,352,000
=========== ===========
See accompanying notes to consolidated financial statements
21
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Net Revenues (Note 8) $63,303,000 $56,680,000 $66,957,000
Cost of Sales 56,424,000 51,584,000 56,493,000
----------- ----------- ------------
Gross Profit 6,879,000 5,096,000 10,464,000
Operating Expenses:
Selling, General and
Administrative Expenses 8,278,000 7,333,000 6,129,000
----------- ----------- ------------
Income (Loss) from Operations (1,399,000) (2,237,000) 4,335,000
Interest Income 56,000 250,000 274,000
Interest Expense (144,000) (181,000) (448,000)
Other Income, net ------- 242,000 200,000
Gain on Sale of Fixed Assets 34,000 26,000 -------
----------- ----------- ------------
Income (Loss) from Continuing Operations Before Income Taxes (1,453,000) (1,900,000) 4,361,000
Income Tax Expense (Benefit) (Note 6) (526,000) (603,000) 1,652,000
------------ ------------ ------------
Income (Loss) from Continuing Operations (927,000) (1,297,000) 2,709,000
Income (Loss) from Discontinued Operations
(net of applicable income tax benefit of $333,000
and $268,000 in 2001 and 2000, respectively) (Note 12) ------- (695,000) (436,000)
Loss on Disposal of Discontinued Operations
(net of applicable income tax benefit of $5,000) (Note 12) (8,000) ----- -----
------------ ----------- -------------
Net Income (Loss) ($ 935,000) ($ 1,992,000) $ 2,273,000
============= ============ ============
Basic and Diluted Income (Loss)
from Continuing Operations - Per Share ($ 0.15) ($ 0.21) $ 0.43
Basic and Diluted Income (Loss)
from Discontinued Operations - Per Share $ ------- ($ 0.12) ($ 0.07)
------------ ------------ ------------
Basic and Diluted Income (Loss) - Per Share ($ 0.15) ($ 0.33) $ 0.36
============== ============ ===========
Weighted Average Shares Outstanding - Basic and Diluted 6,077,000 6,082,000 6,232,000
----------- ------------ ------------
See accompanying notes to consolidated financial statements
22
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 and 2002
COMMON STOCK LOAN RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
------ ------ ---------- -------- -----
BALANCE, December 31, 1999 6,344,000 $6,788,000 ($421,000) $ 13,905,000 $20,272,000
Repurchase and Retirement of Stock (207,000) (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 6,137,000 $ 6,241,000 ($ 57,000) $16,178,000 $22,362,000
Repurchase of Stock (42,000) (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 6,095,000 $ 6,139,000 ($ 46,000) $14,186,000 $20,279,000
Repurchase of Stock (57,000) (233,000) ------- ------- (233,000)
Repayment of Loan Receivable
Related to Stock Options ------- ------- 46,000 ------- 46,000
Net (Loss) ------- ------- ------- (935,000) (935,000)
---------- ----------- ---------- ------------- -------------
BALANCE, December 31, 2002 6,038,000 $ 5,906,000 $ ------- $13,251,000 $19,157,000
============ =========== ========== ============ ============
See accompanying notes to consolidated financial statements
23
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 935,000) ($1,992,000) $2,273,000
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 383,000 376,000 362,000
Gain on sale of property, plant and equipment (34,000) (26,000) -------
Provision for deferred income taxes (39,000) (198,000) 169,000
(Increase) decrease in:
Accounts receivable (200,000) 4,848,000 37,000
Inventories (2,503,000) 2,398,000 1,560,000
Income tax receivable 426,000 (594,000) (192,000)
Increase (decrease) in:
Accounts payable (1,801,000) 534,000 (881,000)
Warranty allowance 292,000 (138,000) (163,000)
Accrued legal 448,000 357,000 (292,000)
Dealer incentives (501,000) 407,000 (318,000)
Other assets and liabilities 1,572,000 854,000 295,000
---------- ---------- ---------
Net cash provided by operating activities (2,892,000) 7,521,000 3,286,000
----------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (171,000) (178,000) (1,640,000)
Proceeds from sale of property and equipment 159,000 108,000 --------
Issuance of notes receivable ------- -------- (151,000)
---------- ----------- ----------
Net cash (used in) investing activities (12,000) (70,000) (1,791,000)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on long-term debt (35,000) (34,000) (30,000)
Repayments on short-term notes (248,000) (237,000) (127,000)
Proceeds (Repayment) on chassis vendor line of credit 328,000 (502,000) (3,590,000)
Proceeds from loan receivable on exercise of stock options 46,000 11,000 15,000
Repurchase and retirement of stock (233,000) (102,000) (547,000)
----------- ------------ -----------
Net cash (used in) financing activities (142,000) (864,000) (4,279,000)
----------- ------------ -----------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS 141,000 (1,373,000) (98,000)
NET (DECREASE) INCREASE IN CASH (2,905,000) 5,214,000 (2,882,000)
BEGINNING CASH BALANCE 8,662,000 3,448,000 6,330,000
---------- ----------- ----------
ENDING CASH BALANCE $5,757,000 $ 8,662,000 $3,448,000
========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid (refunded) during the year $ (872,000) $ 113,000 $1,370,000
Interest paid during the year $ 144,000 $ 589,000 $ 283,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Repayment of loan receivable through cancellation of bonus liability $ ------- -------- $ 349,000
Notes payable for insurance policies $ 475,000 $ 328,000 $ 223,000
See accompanying notes to consolidated financial statements
24
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, 2002 and 2001:
2002 2001
---- ----
Chassis $ 6,604,000 $ 3,219,000
Raw Materials 2,713,000 2,822,000
Work-in-Progress 1,617,000 1,363,000
Finished Goods 4,115,000 5,142,000
----------- -----------
Total $15,049,000 $12,546,000
=========== ===========
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 $146,000,
$426,000 and $131,000 in 2002, 2001 and 2000, 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. The Company also reserves for
dealer sales incentives, which are netted against revenues. Revenues are also
generated from the service of motorhomes and from shipment or installation of
parts and accessories.
Warranty Reserve Policy - The Company provides retail purchasers of its
motorhomes with a limited warranty against
25
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 $1,904,000, $1,070,000 and $900,000 for the years ended December 31, 2002,
2001 and 2000, 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. All share and per
share amounts have been restated to reflect the retroactive effects of the
2-for-1 stock split, which occurred in July 2002. See note 10.
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", and SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets." These Statements require 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.
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, 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.
26
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2002 and 2001:
Useful Lives
(In years) 2002 2001
---------- ---- ----
Building and Land 5, 31.5 $ 5,281,000 $ 5,937,000
Furniture, Fixtures, Equipment and Other 3-7 1,760,000 1,626,000
Autos and Trucks 3-7 292,000 286,000
------------- --------------
7,333,000 7,849,000
Less: Accumulated Depreciation 2,312,000 2,089,000
------------- --------------
Property and Equipment, net $ 5,021,000 $ 5,760,000
============= ==============
Depreciation Expense $ 383,000 $ 376,000
============= ==============
In July 2001, there was a fire at the Company's manufacturing facility which
caused approximately $1,600,000 worth of damage to the plant, offices and
inventory. During 2002, the Company was able to determine the damage to the
building and improvements amounted to $524,000. The building improvements have
been written down and the Company has been reimbursed by insurance for the fire
damage.
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 (4.25% at December 31, 2002). At December
31, 2002, no amounts were outstanding under this line and $711,000 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 $5,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.25% at December 31, 2002). All
borrowings are secured by the Ford merchandise. The outstanding balance at
December 31, 2002 and 2001 was $3,381,000 and $3,053,000 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, (4.92% at December 31,
2002). 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. During 2002, the remaining balance was paid in
full leaving the outstanding balance as of December 31, 2002 at nil.
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
27
Regulation 1.1274-4 of Internal Revenue Code of 1986, (4.92% at
December 31, 2002).
5. NOTES PAYABLE AND LONG-TERM DEBT
2002 2001
---- -----
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 $839,000 at December 31, 2002 $670,000 $705,000
Less: Current Portion 36,000 35,000
---------- ----------
Long-Term Portion $634,000 $670,000
======== ========
Future annual minimum principal payments due on long-term debt (including
current portion) as of December 31, 2002 are as follows:
Year Ending December 31,
2003 36,000
2004 39,000
2005 41,000
2006 44,000
Thereafter 510,000
----------
$670,000
6. INCOME TAXES
The components of income tax expense (benefit) are as follows:
Year Ended December 31,
2002 2001 2000
---- ---- ----
Income tax expense (benefit)
excluding discontinued operations ($ 526,000) ($ 603,000) $ 1,652,000
Income tax (benefit) of discontinued operations (5,000) (333,000) (268,000)
------------- -------------- --------------
Total income tax expense (benefit) ($ 531,000) ($ 936,000) $ 1,384,000
============== ============== ============
Current:
Federal ($ 392,000) ($ 788,000) $ 915,000
State (56,000) 50,000 300,000
------------- ------------- ------------
(448,000) (738,000) 1,215,000
------------- ------------- ------------
Deferred:
Federal (66,000) (105,000) 159,000
State (17,000) (93,000) 10,000
-------------- ------------- ------------
(83,000) (198,000) 169,000
-------------- ------------- ------------
$ 531,000 ($ 936,000) $ 1,384,000
============== ============= ============
28
The components of deferred tax assets (liabilities) at December 31, 2002 and
2001 are as follows:
2002 2001 2000
---- ---- ----
Current:
Allowance for bad debts $ 35,000 $ 60,000 $ 40,000
Inventory reserves and unicap 111,000 125,000 145,000
Warranty accrual 117,000 281,000 332,000
Net operating losses 235,000 100,000 -------
Reserve for self insurance 456,000 176,000 112,000
Legal reserves 75,000 146,000 -------
Other accrued liabilities 325,000 151,000 97,000
State tax ------- ------ 95,000
------------ ------------ ------------
$ 1,354,000 $ 1,039,000 $ 821,000
Non Current:
Depreciation 185,000 ------ (55,000)
------------ ------------ -------------
Deferred tax assets $ 1,539,000 $ 1,039,000 $ 766,000
------------ ------------- ------------
Less:
Valuation allowance (536,000) (75,000) -------
------------ -------------- ------------
Net deferred tax asset $ 1,003,000 $ 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,
----------------------------------------------------------------
2002 2001 2000
---- ---- ----
Net income (loss) before income taxes ($1,466,000) ($1,900,000) $ 4,361,000
Statutory federal tax rate 34% 34% 34%
--- --- ---
Expected tax expense (benefit) (499,000) (646,000) 1,483,000
State taxes net of federal effect (86,000) (46,000) 205,000
Permanent differences 8,000 5,000 5,000
Other adjustments 51,000 84,000 (41,000)
------------ --------------- ------------
Provision for income taxes of continuing operations (526,000) (603,000) 1,652,000
Provision for income taxes of discontinued operations (5,000) (333,000) (268,000)
------------ --------------- ------------
Provision for income taxes ($ 531,000) ($ 936,000) $ 1,384,000
============== ================ ============
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 2002, the
Company repurchased approximately $1,760,000 (wholesale value) of motorhomes
under these agreements. As of December 31, 2002, $287,000 remained in Finished
Goods Inventory.
At December 31, 2002 and 2001 approximately $28,900,000 and $23,900,000,
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.
Warranties - Estimated warranty costs are accrued for at the time the vehicle is
sold to a dealer. Included in the warranty cost accruals are costs for basic
warranties on units sold. Estimates for warranty costs are made based primarily
on recent
29
warranty claim experience. The following is a tabular reconciliation
of the product warranty accrual:
January 1, 2001 beginning balance $ 837,000
Payments made in 2001 (1,439,000)
Changes to accrual related to warranties issued in 2001 1,261,000
Changes to accrual related to pre-existing warranties 40,000
------------
December 31, 2001 ending balance $ 699,000
------------
Payments made in 2002 ($1,790,000)
Changes to accrual related to warranties issued in 2002 1,601,000
Changes to accrual related to pre-existing warranties 481,000
------------
December 31, 2002 ending balance $ 991,000
===========
8. SIGNIFICANT CUSTOMERS
The Company had one major customer, La Mesa RV with locations in CA and AZ, who
accounted for 18% of the Company's net revenues during 2002. There were no
customers that comprised over 10% 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. Sohn Corporation ceased operations in August
2001.
9. PROPERTY HELD FOR SALE
At December 31, 2001, the Company's customer service center in Elkhart, Indiana
was 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. It was sold in 2002 for a net selling price of
$159,000.
10. EARNINGS PER SHARE
All share and per share amounts have been restated to reflect the retroactive
effects of the 2-for-1 stock split, which occurred in July 2002.
The following is a reconciliation of the basic and diluted earnings per share
computation for the year 2002, 2001 and 2000 (in thousands, except per share
data):
Year ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Net Income (Loss) Used for Basic and
Diluted Earnings Per Share ($935) ($1,992) $2,273
------ -------- ------
Shares of Common Stock and Common Stock Equivalents:
Weighted Average Shares Used in Basic and Diluted Computation 6,077 6,082 6,232
----- ----- -----
Earnings Per Share:
Basic and Diluted ($0.15) ($ 0.33) $ 0.36
------- --------- ------
During the 12 months ended December 31, 2002, the Company repurchased 57,000
common shares on the open market at an average cost of $4.10 per share.
30
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations for fiscal 2002 and 2001 are as follows:
in thousands, except per share data
First Second Third Fourth
Quarter Quarter Quarter Quarter
FISCAL 2002:
Net Revenues $17,407 $18,964 $12,872 $14,060
Gross Profit 1,323 2,354 1,042 2,160
Income (Loss) from Continuing Operations
before Income Taxes (418) 441 (1,517) 41
Income (Loss) from Continuing Operations (253) 264 (907) (31)
(Loss) from Discontinued Operations, net ----- ----- ----- -----
Net Income (Loss) (253) 264 (907) (39)
Basic and Diluted Net Income (Loss) Per Share (1) (0.04) 0.04 (0.15) (0.01)
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) 0.02 0.02 (0.11) (0.26)
(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.
12. 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 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,
------------------------
2002 2001 2000
---- ---- ----
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)
=========== =========== ==========
Net Loss on Disposal of Discontinued Operations ($ 8,000) $ ------- $ -------
=========== =========== ==========
31
As of December 31,
------------------------------------------------
2002 2001 2000
---- ---- ----
Cash $ 154,000 $ 90,000 (21,000)
Receivables, net 28,000 4,560,000 167,000
Inventories ------- 34,000 7,532,000
Other Current Assets ------- 5,000 98,000
---------- ------------ -----------
Current Assets of Discontinued Operations $ 182,000 $ 4,689,000 $7,776,000
=========== ============= ==========
Property and Equipment at Cost Net of Accumulated Depreciation $ 37,000 $ 158,000 118,000
Other Assets ------- 2,000 92,000
----------- ------------ -----------
Non-Current Assets of Discontinued Operations $ 37,000 $ 160,000 $ 210,000
=========== ============= ============
Accounts Payable $ ------- $ 54,000 $1,651,000
Notes Payable 20,000 4,455,000 6,605,000
Other Current Liabilities ------- ------- 68,000
----------- ------------ -----------
Current Liabilities of Discontinued Operations $ 20,000 $ 4,509,000 $8,324,000
=========== ============= ==========
13. SUBSEQUENT EVENT
In January 2003, the Company completed the purchase of 12.5 acres of
land adjacent to its headquarters in Lancaster, California. The Company paid
$564,448 in cash and issued a promissory note for $300,000. The agreement with
the City of Lancaster will allow for the promissory note to be forgiven in total
or in part based upon a formula for providing jobs. The Company plans to build a
new facility on this land so that it can produce its own diesel chassis with a
new motorhome concept to be built on that chassis.
32
Schedule I
Valuation and Qualifying Accounts
Allowance for Doubtful Receivables
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
===========
Additions: Charges to Operations 1,000
Deductions: A/R Write Offs ( -------)
-----------
BALANCE, December 31, 2002 $ 103,000
===========
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure
On December 30, 2002, the Audit Committee of the Company dismissed the
firm of KPMG LLP ("KPMG") as the Company's independent auditors. The decision to
dismiss KPMG was recommended by the Audit Committee and unanimously approved by
the Company's Board of Directors.
KPMG's report on the Company's financial statements for the years ended
December 31, 2000 and December 31, 2001 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
Except as described below, during the years ended December 31, 2000 and
December 31, 2001 and the subsequent interim periods preceding the date of
dismissal, there were no disagreements (as defined in Item 304(a) (1) (iv) of
Securities and Exchange Commission Regulation S-K).
During the subsequent interim periods preceding the date of dismissal,
the Company concluded that an incorrect number was recorded for its raw material
inventory during the first quarter of 2002, and it would need to restate the
financial information in its Form 10-Q for the first quarter. Initially, the
Company and KPMG disagreed on the scope and timing of the independent
investigation related to this error, which commenced in August of 2002.
Ultimately, this disagreement was resolved with both the second quarter and
restated first quarter 10-Q's being filed after the independent investigation
was completed in late September, which identified no further changes were needed
to the first quarter's financial statements other than what had been originally
identified by management.
Except as described below, during the years ended December 31, 2000 and
December 31, 2001 and the subsequent interim periods preceding the date of
dismissal, there were no reportable events (as defined in Item 304(a) (1) (v) of
Securities and Exchange Commission Regulation S-K).
During the subsequent interim periods preceding the date of dismissal,
KPMG proposed a significant increase in audit scope for the year-end audit of
2002. KPMG communicated to the Audit Committee of the Board of Directors that
various factors contributed to the increase, including their belief that there
was both a reduction in the number of personnel in the accounting and financial
reporting departments, and a reduction in the level of experience of personnel
with accounting and reporting responsibilities, and their belief that they would
be unable to rely upon internal controls related to information technology
systems and inventory.
33
KPMG also proposed a very significant increase in the billing rates it
had used in the past for the Company, which led to the Company's Audit Committee
to solicit bids for the upcoming 2002 yearend audit.
On March 5, 2003, the Company engaged the independent accounting firm
of Beckman Kirkland and Whitney ("BKW") to serve as its new independent public
accountants. The decision to engage BKW was recommended by the Company's Audit
Committee and unanimously approved by the Company's Board of Directors.
During the years ended December 31, 2000 and December 31, 2001 and the
subsequent interim periods, the Company did not consult with BKW regarding
either (i) the application of accounting principles to a specified transaction
or the type of audit opinion that might be rendered on the Company's financial
statements or (ii) any matter that was either the subject of a disagreement (as
defined in Item 304(a) (l) (iv) of Regulation S-K) or a reportable event (as
defined in Item 304(a) (l) (v) of Regulation S-K).
As the Company announced in its press release dated March 7, 2003, the
Company's Audit Committee has given consideration to the information provided by
KPMG with respect to their proposed increase in fees. The Audit Committee has
shared this information with its new independent public accountants, Beckman
Kirkland & Whitney, and has requested the firm perform additional tests and
procedures as part of its audit for the year ended December 31, 2002 and to
report to the Audit Committee with respect to the internal controls of the
Company related to information technology systems and inventory.
34
Part III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company and their ages as of
April 15, 2003 are as follows:
Name Age Positions Held Director Since
- ---- --- -------------- --------------
William J. Rex (1) 52 Chairman of the Board of Directors, 06/19/86
President and Chief Executive Officer
Robert A Lopez (1) (2) 63 Director 05/26/93
Frank A. Visco (1) (2) 58 Director 12/17/98
Dr. Dennis K. Ostrom (2) 61 Director 7/12/99
J. Michael Bourne 39 Executive Vice President, 8/16/02
Chief Operating Officer and
Acting Chief Financial Officer
Director
James C. Rex 54 Vice President and General Manager
of Consumer Affairs
(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. Except for William J. and James C.
Rex, who are brothers, 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 and $100 per hour for Board related activities outside of
formal meetings.
Mr. Rex, a founder of the Company, has served as the Company's Chief
Executive Officer from its inception as a general partnership in 1986. Upon
commencing operations in corporate form in January 1987, Mr. Rex also 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.
Mr. Robert A. Lopez retired from Nickerson Lumber and Plywood in
February 2003. Mr. Lopez started his employment with Nickerson as an outside
salesman in 1969 and in 1980 he became a partner. He was elected as President of
Nickerson in 1981 and served in that capacity until his retirement. His
background is primarily in marketing products to residential builders,
manufactured housing and recreational vehicle assemblers. In his spare time, if
any, Mr. Lopez is a member of the San Fernando Rangers, a non-profit
organization working to use horses as therapeutic conditioning for mentally and
physically disabled children.
35
Mr. Frank A. Visco is the 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 (includes
Lancaster, CA) 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 and
operated Frank A. Visco & Associates Insurance Agency since 1984 to current. 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 and since 1996 has served as a consultant for San
Diego Gas & Electric, Pacific Gas & Electric and Southern California Edison. 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 2002, Dr. Ostrom was a member of the Board of Directors
for Keysor Century, Inc., in Saugus, California. In addition to his consulting
work, Dr. Ostrom is a Planning Commissioner for the City of Santa Clarita.
Mr. J. Michael 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. He started his
career in 1987 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, a manufacturer of
commercial delivery trucks, in 1995 while Vought Aircraft and Grumman Olson were
owned by Northrop Grumman. In 1997, he added the role of Director of Strategic
Planning. He then became the Director of Western Region Operations for Grumman
Olson in 1998 until joining Rexhall in his current role in 2001. Mr. Bourne is
also a Certified Public Accountant.
Mr. James C. Rex has been employed in the RV Industry since 1973, when
he began his career with Dolphin Trailer Company. In 1983, Mr. Rex was hired by
Establishment Industries to manage their Service and Warranty Department. He was
later promoted to Vice President of Production where he oversaw the production
of Class A and Class C motorhomes. In 1993, Mr. Rex was hired by Rexhall
Industries, Inc. to manage the Company's Customer Service Department. In 1995,
he was promoted to National Director of Warranty and Service. Today, Mr. Rex is
the Vice President and General Manager of Consumer Affairs, and oversees both of
the Company's Service Centers, which are located in Lancaster, California and
Mesa, Arizona.
36
Item 11. Executive Compensation
Cash Compensation
The following table sets forth certain information as to the Company's
Chief Executive Officer and each of the Company's other highest paid executive
officers whose salary and bonus exceeded $100,000 for the year ended December
31, 2002:
SUMMARY COMPENSATION TABLE
Annual Compensation
Bonus
Name and Accrued Other Annual
Principal Position Year Salary ($) Bonus Paid Non-Paid Compensation (1)
- ------------------ ---- ---------- ---------- ------------------------------
William J. Rex 02 235,200(2) 87,100 22,342 -----
Chief Executive Officer 01 237,100(2) 150,100 ----- -----
and President 00 250,000 See Note (3) 5,000 -----
J. Michael Bourne(4) 02 140,000 ----- ----- -----
Executive Vice President 01 118,700(2) ----- ----- -----
and Chief Operating Officer
Don Hannay, Sr.(5) 02 41,100 86,300 ----- -----
V.P. of Sales & Marketing 01 66,100 123,400 5,800 -----
00 62,800 161,800 12,400 -----
James C. Rex (6) 02 67,200 46,800 ----- -----
Vice President and 01 52,000 49,700 ----- -----
General Manager of 00 52,000 54,000 ----- -----
Consumer Affairs
(1) The unreimbursed incremental cost to the Company of providing
perquisites and other personal benefits during 2002 did not exceed, as
to any named officer, the lesser of $50,000 or 10% of the total 2002
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.
(2) Immediately following the tragic events of September 11, 2001, William
J. Rex took a 20% pay cut which was reinstated in April 2002. The rest
of the officers took 10% pay cuts which were reinstated in December
2001.
(3) 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 to exercise options granted to him 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.
(4) Mr. Bourne joined the Company in February 2001.
(5) Mr. Hannay retired from the Company in August 2002.
(6) Mr. James C. Rex is the brother of Mr. William J. Rex. Option Grants
and Exercises
37
The Company has no option or similar plan or any outstanding options.
There were no options granted or exercised during the year ended December 31,
2002.
Employment Agreement
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. There are no change of control
arrangements in the employment agreement.
Compensation Committee Interlocks And Insider Participation
None of the Company's executive officers has served or currently serves
on a board of directors or on a compensation committee of any other entity that
had officers who served on the Company's board of directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The information for this section will be included in the Company's
Definitive Proxy Statement for its 2003 Annual Meeting of Shareholders to be
filed on or before April 30, 2003 and is hereby incorporated herein by this
reference.
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, (iii) each of
the Company's executive officers named in the Summary Compensation Table
included under "Executive Compensation" under Item 11 of this Report who
beneficially owning Common Stock, and (iv) all of the Company's officers and
directors as a group as of April 15, 2003:
Number of
Name of Beneficial Owner Shares Percent of
Outstanding Beneficially Shares at
or Identity of Group Owned (1) April 15, 2003
-------------------- --------- --------------
Trust of William J. Rex 3,246,000 54.9%
and Cheryl L. Rex(1)
c/o Rexhall Industries
46147 7th Street West
Lancaster, California 93534
All Directors and Executive
Officers as a Group 3,252,000 55.0%
(1) William J. Rex and Cheryl. L. Rex have voting and investment power
with respect to all shares of Common Stock shown as beneficially owned
by the trust.
38
Item 13. Certain Relationships and Related Transactions
In December 2000, the Company and Mr. William J. Rex, its President and
Chief Executive Officer, 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, (4.92% at December 31, 2002). The largest amount owing to the Company on
this loan during 2002 was $151,000 and at March 31, 2003 $151,000 was owing on
this loan.
39
PART IV
Item 14. Controls and Procedures
Evaluation Of Disclosure Controls And Procedures
Within the 90-day period prior to the date of this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act
of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company and its subsidiary required to be included in the
Company's Exchange Act filings.
Changes In Internal Controls
There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8K
(a) (1) Financial Statements
See Item 8
(2) Financial Statement Schedule
Schedule I - Valuation and Qualifying Accounts Page 33
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
(3) Exhibits
(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
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant to the three months ended
December 31, 2002.
40
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/ J. Michael Bourne
------------------------------------------------------- -----------------------------
(Signature and Title)* (Signature and Title)*
William J. Rex, President, CEO & Chairman J. Michael Bourne, EVP, COO and acting CFO
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: April 15, 2003 Date: April 15, 2003
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: April 15, 2003
By /S/ J. Michael Bourne ________________________________
- ------------------------------
(Signature and Title)*
J. Michael Bourne
Executive Vice President, COO & acting CFO
Director
Date: April 15, 2003
By /S/ Robert A. Lopez ________________________________
- --------------------------------
(Signature and Title)
Robert A. Lopez
Director
Date: April 15, 2003
By /S/ Frank A. Visco _______________________________
- ---------------------------------
(Signature and Title)*
Frank A. Visco
Director
Date: April 15, 2003
By /S/ Dr. Dennis K. Ostrom _______________________________
- -----------------------------
(Signature and Title)*
Dr. Dennis K. Ostrom
Director
Date: April 15, 2003
41
CERTIFICATIONS
I, William J. Rex, certify that:
1. I have reviewed this annual report on Form 10-K of Rexhall Industries,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining "disclosure controls and procedures" (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing of this annual
report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls, which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 15, 2003 /s/ William J. Rex
----------------------------
William J. Rex
President and Chief Executive Officer
42
I, J. Michael Bourne, certify that:
1. I have reviewed this annual report on Form 10-K of Rexhall
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining "disclosure
controls and procedures" (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant is made
known to us, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and to the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls, which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 15, 2003 /s/ J. Michael Bourne
-----------------------
J. Michael Bourne
Executive Vice President, Chief Operating Officer and
Acting Chief Financial Officer
43
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Rexhall Industries, Inc. (the
"Company") on Form 10-K for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned, in the capacities and on and on the dates indicated below,
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
REXHALL INDUSTRIES, INC
By: /s/ William J. Rex
--------------------------
April 15, 2003 William J. Rex
President and Chief Executive Officer
By: /s/ J. Michael Bourne
-------------------------
April 15, 2003 J. Michael Bourne
Executive Vice President, Chief Operating Officer and
Acting Chief Financial Officer
44