-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WkHuSTTIWyh5v5oZKKnkO1M+iQdxQa5+JK++AHrjMv1Uukp0MEZR2O/dDSReeiDy KteriropK7KkdZrfe2qa5w== 0000850476-99-000011.txt : 19990518 0000850476-99-000011.hdr.sgml : 19990518 ACCESSION NUMBER: 0000850476-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REXHALL INDUSTRIES INC CENTRAL INDEX KEY: 0000850476 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR HOMES [3716] IRS NUMBER: 954135907 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17824 FILM NUMBER: 99625443 BUSINESS ADDRESS: STREET 1: 46147 7TH STREET WEST CITY: LANCASTER STATE: CA ZIP: 93534 BUSINESS PHONE: 8057260565 MAIL ADDRESS: STREET 1: 46147 7TH STREET WEST CITY: LANCASTER STATE: CA ZIP: 93534 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1999 Commission file number: 0-17824 REXHALL INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) California 95-4135907 (State of Incorporation) (IRS Employer Identification No.) 46147 7th Street West, Lancaster California 93534 (Address of principal executive offices) (Zip Code) (661) 726-0565 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No _____. Applicable only to Corporate Issuers State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 3,010, 362 as of 5/13/99. REXHALL INDUSTRIES, INC. INDEX PART 1 - FINANCIAL INFORMATION PAGE NUMBER Item 1. Condensed Financial Statements: Condensed Balance Sheets at March 31, 1999 (Unaudited) 3 and December 31, 1998 Condensed Statements of Operations (Unaudited) for the three months ended March 31,1999 and March 31, 1998 4 Condensed Statements of Cash Flows (Unaudited) for the three months ended March 31, 1999 and March 31, 1998 5 Notes to Condensed Financial Statements as of March 31, 1999 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION Reports on Form 8-K: None 11 Signatures 12 (Audited) (Unaudited) December 31 March 31 PART I - FINANCIAL INFORMATION 1998 1999 Item 1. - Condensed Financial Statements REXHALL INDUSTRIES, INC. CONDENSED BALANCE SHEETS ASSETS CURRENT ASSETS Cash $ 5,017,000 $ 6,383,000 Accounts Receivable 4,631,000 4,828,000 Inventories 12,774,000 13,808,000 Other Current Assets 33,000 18,000 Deferred Income Taxes 956,000 1,003,000 Total Current Assets 23,411,000 26,040,000 Property and Equipment - Net 4,519,000 4,677,000 Property Held for Sale 541,000 536,000 TOTAL ASSETS $28,471,000 $31,253,000 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 7,958,000 $ 9,076,000 Warranty Allowance 966,000 1,136,000 Accrued Legal Settlement 765,000 764,000 Accrued Legal 829,000 767,000 Dealer Incentives 830,000 847,000 Accrued Compensation and Benefits 672,000 691,000 Other Accrued Liabilities 557,000 831,000 Current Portion of Long-Term Debt 29,000 29,000 Total Current Liabilities 12,606,000 14,141,000 Deferred Income Tax Liabilities 106,000 106,000 Long Term Debt 767,000 761,000 TOTAL LIABILITIES 13,479,000 15,008,000 SHAREHOLDERS' EQUITY Preferred Stock - no par value; Authorized 1,000,000 shares; No shares outstanding at December 31, 1998 and March 31, 1999 --- --- Common Stock - no par value; Authorized 10,000,000 shares; issued and outstanding 3,010,000 at December 31,1998 and 3,010,000 shares at March 31, 1999 6,788,000 6,788,000 Loan receivable from exercise of options (399,000) (405,000) Retained Earnings 8,603,000 9,862,000 TOTAL SHAREHOLDERS' EQUITY 14,992,000 16,245,000 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,471,000 $31,253,000 See accompanying notes to condensed financial statements. PART I - FINANCIAL INFORMATION Item 1. - Condensed Financial Statements REXHALL INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31, 1998 March 31, 1999 Sales $14,170,000 $ 22,233,000 Cost of Sales 12,007,000 18,094,000 Gross Profit 2,163,000 4,139,000 Selling, General, Administrative and Other Expenses 1,258,000 2,044,000 Income Before Income Taxes 905,000 2,095,000 Income Taxes 362,000 836,000 Net Income $ 543,000 $ 1,259,000 Basic Net Income Per Common Share $ .19* $ .42 Diluted Net Income Per Common and Equivalent Share $ .19* $ .42 Weighted Average Shares Outstanding-Basic 2,864,000 3,010,000 Weighted Average Shares Outstanding - Diluted 2,913,000 3,017,000 *Originally reported as $.20 per share based on 2,722,000 shares outstanding. However, considering the 5% stock dividend of 142,000 shares on June 19, 1998, earnings were adjusted to $.19 per share. See accompanying notes to condensed financial statements. PART I - FINANCIAL INFORMATION Item 1. - Condensed Financial Statements REXHALL INDUSTRIES, INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) 1998 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 543,000 $ 1,259,000 Adjustments to reconcile net income to net cash provided by (used in) Operating Activities: Depreciation and Amortization 83,000 67,000 Change in Deferred Income Taxes --- (47,000) (INCREASE) DECREASE IN: Accounts Receivable (1,606,000) (197,000) Inventories 691,000 (1,034,000) Other (21,000) 9,000 Income Tax Receivable 337,000 --- INCREASE (DECREASE) IN: Accounts Payable (308,000) 1,118,000 Other Current Liabilities 21,000 400,000 Dealer Incentives (119,000) 17,000 Net cash provided by (used in) operating activities (379,000) 1,592,000 CASH FLOWS FROM INVESTING ACTIVITIES: Net cash used in investing activities - Additions to property and equipment (118,000) (220,000) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (6,000) (6,000) Repurchase of stock (5,000) --- Net cash used in financing activities (11,000) (6,000) NET (DECREASE) INCREASE IN CASH (508,000) 1,366,000 BEGINNING CASH BALANCE 811,000 5,017,000 ENDING CASH BALANCE $ 303,000 $ 6,383,000 See accompanying notes to condensed financial statements. PART I - FINANCIAL INFORMATION Item 1. REXHALL INDUSTRIES, INC. Notes to the Condensed Financial Statements March 31, 1999 1. Basis of Presentation: The accompanying unaudited condensed Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, they include all adjustments, consisting of normal accruals,necessary to present fairly the information set forth herein in accordance with generally accepted accounting principles for interim reporting. Certain reclassifications have been made of prior years to conform to current period financial statement presentation. For further information refer to the Financial Statements and footnotes included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. The Results of Operations for any interim period are not necessarily indicative of the results to be expected for the full year. 2. Summary of Significant Accounting Polices: Income Taxes Income tax expense is based upon the estimated effective tax rate for the entire fiscal year. The effective tax rate is subject to ongoing evaluation by management. Earnings Per Share Basic earnings per share represents net earnings divided by the weighted- average number of common shares outstanding for the period. Diluted earnings per share represents net earnings divided by the weighted-average number of shares outstanding, inclusive of the dilutive impact of common stock options. During the three months ended March 31, 1999, the difference between basic and diluted earning per share was due to the dilutive impact of options to purchase common stock. Recently Issued Pronouncements In June 1998, FASB issued Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management has determined that the disclosure requirements from this statement will not impact the financial statements of the Company. 3. Detail of Inventory December 31, 1998 March 31,1999 Raw Material $ 7,593,000 $ 8,606,000 Work in Process 1,522,000 1,153,000 Finished Motorhomes 3,659,000 4,049,000 TOTAL $12,774,000 $13,808,000 4. Income Per Share The following is a reconciliation of the basic and diluted income per share computation for the quarters ended March 31, 1998 and 1999. Three Months Ended March 31, 1998 March 31, 1999 Net income used for basic and diluted income per share $ 543,000 $ 1,259,000 Shares of Common Stock and Common Stock equivalents: Weighted average shares used In basic computation 2,864,000 3,010,000 Dilutive effect of Stock Options 49,000 7,000 Shares used in diluted computation 2,913,000 3,017,000 Income per share: Basic $ 0.19 $ 0.42 Diluted $ 0.19 $ 0.42 During 1998, the Company issued a 5% stock dividend, resulting in the issuance of 142,000 shares of common stock. The impact of this stock dividend has been retroactively recorded in the per share calculation for the three months ended March 31, 1998. PART I - FINANCIAL INFORMATION Item 2. - Management Discussion and Analysis of Financial Condition and Results of Operations. All statements in this discussion and analysis which relate to future sales, costs, capital expenditures or earnings are "Forward-Looking Statements" and should be read subject to the assumptions contained in the "Forward-Looking Statements". Results of Operations For the Three Months ended March 31, 1999 and for the Three Months ended March 31, 1998 Sales - 1999 Compared with 1998 Sales for the first quarter ended March 31, 1999 were $22,233,000 as compared to $14,170,000 for the first quarter in 1998. This represents a 56.9% increase over the prior year. Units sold for the quarter ended March 31, 1999 were 327 as compared to 231 for the prior year quarter end. The increase in sales may be attributed to the acceptance of the double slide motorhome design both in the retail and wholesale market, overall acceptance of the Rexhall product line by the ultimate consumer, and the increase in the production capability of the California facility. The Company anticipates the volume to continue, but does not expect the percentage increase to be as high in future quarters for 1999 compared to the quarters in 1998. Cost of Sales - 1999 compared with 1998 Cost of Sales for the quarter ended March 31, 1999 as a percentage of sales was 81.4%, showing improvement when compared to the prior year quarter ended March 31, 1998 of 84.7%. Gross Profit for the first quarter of 1999 was 18.6% as compared to 15.3% for the quarter ended March 31, 1998. The increase in the gross profit percentage was due to efficiencies implemented at the California facility as discussed above. The Company anticipates the margins to hold or improve, but there can be no assurance that this will happened due to the unknown nature of the impact of competition within the industry. Selling, General Administrative and Other Expenses-1999 compared with 1998 Selling, General and Administrative and Other Expenses increased to 9.2% as a percentage of sales when compared to 8.9% for the quarter ended March 31, 1998. Administrative bonuses, dealer incentives, along with an increase in warranty expense were the primary causes of the increase. The election by a new dealer to take dealer incentives rather than the sales discounts contributed to an increase in 1999 over 1998 of such incentive costs. Beginning in the fourth quarter of 1998, the Company began accelerating the processing of warranty claims. The increased response to dealers has resulted in heightened warranty costs for the period. In addition such costs are linked to the increase in sales volume. The compensation costs associated with an increase in profitability and unit sales showed relative increases. Income Before Taxes - 1999 Compared to 1998 Income before taxes were $2,095,000 for the quarter ended March 31, 1999 as compared to $905,000 in the first quarter of prior year. The increase in income taxes reflects an improvement in the Company's pre-tax income between years. Income taxes are provided based upon the estimated effective tax rate for the entire fiscal year applied to the pre-tax income for the period. The effective tax rate is subject to ongoing evaluation by management. Financial Condition, Capital Resources and Liquidity The Company has relied primarily on internally generated funds, trade credit and debt to finance its operations and expansions. As of March 31, 1999, the Company had working capital of $11,899,000, compared to $10,805,000 at December 31, 1998. The $1,094,000 increase in working capital is primarily due to a $1,366,000 increase in cash and a $1,034,000 increase in inventories, partially offset by a $1,118,000 increase in accounts payable. The increase in cash and inventory relates to increased 1999 income collected and increases in chassis and finished inventory at March 31,1999, to meet increased sales demands. As of March 31, 1999 the Company has a $3,500,000 line of credit with Bank of America which can be used for working capital purposes. The line expires on July 31, 1999. Under this line of credit, $220,000 has been set aside as an irrevocable standby letter of credit for the Company to meet the requirements for self-insurance established by the Department of Industrial Relations which regulates workmen's compensation insurance in California. At March 31, 1999, no amounts were outstanding under the line of credit agreement. The line of credit contains various covenants. The Company was in compliance with such covenants as of March 31, 1999. The Company has a $1,866,000 line of credit with General Motors Acceptance Corporation, a chassis vendor. Borrowings under the line bear interest at an annual rate of prime plus 1% (8.75% at March 31, 1999). All borrowings are secured by the Company's assets. The outstanding balance included in accounts payable at March 31, 1999 was $306,000. The Company has a line of credit with another chassis vendor, Ford Motor Credit Company ("FMCC"), with a $4,000,000 limit. Borrowings under the line bear interest at an annual rate of prime plus 1% (8.75% at March 31, 1999). All borrowings are secured by the Company's assets. The outstanding balance included in accounts payable at March 31, 1999 was $5,183,000. (To which no objection has been made.) Capital expenditures during the first quarter of 1999 were $220,000. Management anticipates a reduction in the rate of capital expenditures for the remainder of 1999 related to refurbishment and expansion of certain production facilities, production equipment and the enhancement of management information systems. The Company anticipates that it will be able to satisfy its ongoing cash requirements through 1999, including payments related to the legal settlement and expansion plans at the California facility, primarily with cash flows from operations,supplemented, if necessary, by borrowings under its revolving credit agreement. Seasonality The Company's business is subject to seasonal and quarterly fluctuations. Historically, the Company has realized a higher portion of its sales in the second quarter and third quarter, consistent with the summer vacation season. This is consistent with industry trends. Year 2000 The Year 2000 issue is primarily the result of computer programs using a two-digit format, as opposed to four digits,to indicate the year. Computer programs that are date dependent are found in the software that operate many IT systems as well as in the computer based devices which control many types of electronic equipment. Computer programs that are not Year 2000 compliant will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to a disruption in the operation of the related IT systems or electronic equipment. The Company has established and is implementing a program to address the Year 2000 issue. The Year 2000 program included the implementation of previously planned systems as well as specific Year 2000 programs. All programs are on track for completion before the year 2000 with various applications being upgraded or replaced as needed. The failure to correct a material Year 2000 problem may result in an interruption in, or a failure of, certain normal business operations or activities. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Additionally, the Year 2000 program has not deferred any other company projects that will have a material impact on its results of operation, liquidity or financial condition. IT Systems The Company began undertaking changes to bring non-compliant systems and accompanying methodology to Year 200 compliant standards. In furtherance of the Year 2000 program, the Company acquired a new Year 2000 compliant client server enterprise system and hired a full time IS professional to oversee the implementation of the program. The IT systems have been inventoried and the necessary Year 2000 upgrades, replacements and retrofits identified. These projects are presently in various stages of analysis, development and implementation. The Year 2000 program is currently scheduled to be completed by the fourth quarter of 1999. Non-IT Systems Non-IT Systems may contain date sensitive embedded technology requiring the Year 2000 upgrades. Examples of this technology include security equipment such as access and alarm systems, as well as facilities equipment such as heating and air conditioning units. The Company is a product manufacturer; therefore, the "embedded chip" issue relates to production line components as well as to the equipment used by the Company. Production line components and facilities and equipment are being inventoried and assessments are in progress. The Company is also addressing the readiness of its critical suppliers and customers. The Company has inventoried its critical suppliers, and is sending letters to suppliers, and where appropriate, contacting certain suppliers requesting Year 2000 certification. The Company is also contacting certain key customers where potential Year 2000 problems may exist. In certain areas where the Company relies on products supplied by manufacturers for the systems provided to its customers, the Company is seeking standard Year 2000 warranties that, to the extent assignable, may be transferred to customers. Costs The total cost associated with required modifications to become Year 2000 compliant is not expected to be material to the Company's results of operations, liquidity and financial condition. The estimated total cost of the Year 2000 effort is expected to be under $100,000. This estimate does not include the cost of the Company's previously planned business critical systems upgrades, which have not been accelerated due to the Year 2000 problem. Risks and Contingency Planning The Company has identified and assessed the areas that may be at risk related to the Year 2000 problem. The failure to correct a material Year 2000 problem may result in an interruption in, or a failure of, certain normal business operations or activities. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers, the Company is unable to determine at this time whether the consequences of the Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Company has initiated contingency planning for possible Year 2000 issues, including such factors as supply chain and banking operations. Where needed, the Company will establish contingency plans based on the Company's actual testing experience and assessment of outside risks. The Company anticipates final contingency plans to be in place by June 1999. The Year 2000 program is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem. The Company believes that through its Year 2000 program, the possibility of significant interruptions of normal business operations should be reduced. Readers are cautioned that forward looking statements contained in the Year 2000 Update should be read in conjunction with the Company's disclosures under the heading "Forward Looking Statements". Forward-Looking Statements Our reports contain forward-looking statements, usually expressed as our expectations or our intentions. These are based on assumptions and on facts known to us today, and we do not intend to update statements in this report. Rexhall's business is both seasonal and cyclical, and the timing of the business cycle cannot be predicted. Its business is also subject to increases in material costs, and pricing and other pressures from substantially larger competitors, labor disruptions and adverse weather. The recreational vehicle industry has in the past enjoyed favorable recreational vehicle industry sales when we have low interest rates, low unemployment, and ready availability of motor fuel. Finally, dealer relations for the entire recreational vehicle industry may be changed by dealers joining together in financial or operating arrangements just now being formed, which may be similar to developments in the automotive or manufactured housing industries. Management intends to remain aware of these factors and react to them, but cannot predict their timing or significance. Other Information Item 1 - Legal Proceedings Legal Settlement -Bruce Elworthy and Anne B. Marshall (Elworthy and Marshall) sued the Company in June 1995 in the Superior Court of the County of Los Angeles. The suit alleged that a leveling system on a motorhome, purchased from Rexhall was defective and caused damages to Elworthy and Marshall of $1,000,000 for medical expenses, loss of earnings and pain and suffering. Rexhall prevailed in its defense with zero dollars being awarded to the plaintiffs,however, the verdict is subject to appeal. Item 2. - Reports on Form 8-K a) Reports on Form 8-K: None REXHALL INDUSTRIES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. REXHALL INDUSTRIES, INC. by (Registrant) Date: May 15, 1999 /S/William J. Rex William J. Rex Chairman, President and Chief Executive Officer Date: May 15, 1999 /S/Thomas M. Zirnite Thomas M. Zirnite Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----