-----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, NLAnWp/zHjICs9cz3p5c6yQ3bi93PKD81YvllI6akFVvC5FJcKOAZKKvErwMni/e 15PXgKBDxxK56qCOfkvOjQ== 0000850476-01-000001.txt : 20010409 0000850476-01-000001.hdr.sgml : 20010409 ACCESSION NUMBER: 0000850476-01-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K SEC ACT: SEC FILE NUMBER: 000-17824 FILM NUMBER: 1592264 BUSINESS ADDRESS: STREET 1: 46147 7TH STREET WEST CITY: LANCASTER STATE: CA ZIP: 93534 BUSINESS PHONE: 6617260565 MAIL ADDRESS: STREET 1: 46147 7TH STREET WEST CITY: LANCASTER STATE: CA ZIP: 93534 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------- FORM 10-K (Mark One) [x] Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 2000 OR [ ]Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No fee required] (No fee required) For the Transition period from to Commission file number: 0-10067 _________________________________ REXHALL INDUSTRIES, INC. (Exact name of registrant as specified in its charter) California 95-4135907 (State or other jurisdiction of Incorporation or organization) (IRS Employer Identification No.) 46147 7th Street West Lancaster, CA 93534 (Address of principal executive offices) Registrant's telephone number, including area code: (661) 726-0565 Securities registered pursuant to Section 12(b) of the Act: None Name of each exchange on which registered: NASDAQ Stock Market Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] As of March 29, 2001 the aggregate market value of voting stock held by non-affiliates was approximately $6,689,500. Shares of common stock held by each officer, director and holder of 5% or more of the outstanding Common Stock of the Registrant have been excluded in that such persons may be deemed to be affiliates. Total shares of common stock held by those deemed to be affiliates at March 29, 2001 totaled 1,649,000. This determination of affiliate status is not necessarily a conclusive determination of other purposes. As of March 29, 2001 there were 3,057,350 shares of the Registrant's common stock outstanding. PART I Item 1. Business Rexhall Industries, Inc. (the "Company") designs, manufactures and sells Class A motorhomes. Class A motorhomes are self-contained and self-powered recreational vehicles used primarily in conjunction with leisure travel and outdoor activities. In June 2000, the Company incorporated a wholly-owned subsidiary, Price I, Inc., dba, Price One RV, to operate a retail dealership for Class A motorhomes and other similar products. As used herein, the "Company" refers to Rexhall Industries, Inc. and subsidiary and the predecessor partnership. The Company produces all of its products from its manufacturing facility in Lancaster, California, which also serves as its Corporate Headquarters. Class A Motorhomes Based upon industry standards established by the Recreation Vehicle Industry Association ("RVIA"), the Company manufactures certain product lines classified as conventional or class A motorhomes. Conventional or class A motorhomes are self-powered vehicles built on a motor vehicle chassis, with engine and drive train components which are supplied by a motor vehicle manufacturer (i.e. Ford, Workhorse Custom Chassis LLC (formerly GM), and Spartan). The interior of the vehicle typically includes a driver's area, kitchen, bathroom, dining and sleeping areas. Class A motorhomes are self-contained with their own lighting, heating, cooking and refrigeration facilities, waste disposal and water storage tanks, permitting occupancy without requiring connection to utilities. While not designed or intended as permanent housing, Class A motorhomes do provide comfortable living quarters for short periods, particularly for people interested in travel and outdoor recreational activities. Class A motorhomes are different from mobile homes, which are manufactured housing designed for permanent or semi-permanent residential dwelling and, although movable, are not used for transportation. Class A motorhomes are also different from other recreational vehicles, such as class B van campers, which are smaller than, and do not provide all of the features that typically are standard on, Class A motorhomes; Class C mini-low profile and compact motorhomes, which are built on a van or small truck chassis that is supplied with an engine and finished cab section and are differentiated by size; and travel trailers, which are non-motorized vehicles designed to be towed by automobiles, pick-up trucks and vans, and generally by law may not be used as living quarters unless stationary. Travel trailers are further classified as conventional, fifth wheel and park trailers and generally are differentiated by the method and vehicle employed for towing, size configuration and use. Other recreational vehicle categories include folding camping trailers, truck campers and van conversions. As Class A motorhomes are self-contained with kitchen, bathroom facilities and sleeping quarters, it is eligible to be treated as a "qualified residence" under the Internal Revenue Code of 1986, as amended. Thus, as in the case of other recreational vehicles suitable for overnight use, a purchaser may generally deduct interest on debt incurred to acquire a Class A motorhome provided the purchaser designates and uses it as one of no more than two residences and otherwise meets the requirements of the Internal Revenue Code of 1986. Industry Source of Information: Recreation Vehicle Industry Association in Reston, Virginia The following table sets forth comparisons of units and dollar sales of all recreational vehicles and Class A motorhomes in the United States compared with units and dollar sales of the Company during the years ended December 31, 1998, 1999 and 2000: % Change % Change Unit From Prior Revenues From Prior Sales Year (000) Year Total Recreational Vehicles 2000 418,300 -11.7% 11,055,173 -11.2% 1999 473,800 7.4% 12,452,384 20.5% 1998 441,300 .6% 10,337,006 6.6% Class A Motorhomes 2000 41,000 -17.0% 3,854,123 -12.3% 1999 49,400 15.2% 4,394,722 35.2% 1998 42,900 14.1% 3,249,846 23.6% Rexhall Industries, Inc. 2000 861 -31.1% 65,175 -23.1% 1999 1,249 11.3% 84,739 17.3% 1998 1,122 3.7% 72,254 14.7% Approximately 77 million Americans were born between the years of 1946 and 1964. Commonly known as "baby boomers", this demographic facts accounts for what the Company believes to be a rapidly growing population of potential Class A motorhome purchasers. Typically, Class A motorhome buyers are over the age of 60, however, increasing disposable income in the 40 to 60 age group is growing the potential Class A market. The Company's continued product development combined with the unified efforts of the RV industry as a whole to capture the attention of this buying demographic, would indicate significant future growth potential for the Company. The Company's Motorhomes The Company's motorhomes are built with attention to quality. The materials used by the Company in constructing its motorhomes are commonly found on more expensive models and, in the opinion of management, generally are superior to those found on motorhomes in the same price range as the Company's motorhomes. The Company uses only steel, as opposed to wood or aluminum, in framing its cage. The Company uses gel coated, high gloss, one-piece fiberglass panel for the sidewalls, front cap, rear cap and roof, giving the look of a more expensive motorhome and eliminating many of the seams commonly found in most motorhomes. Additionally, fiberglass generally allows easier repair of collision marks and scrapes as opposed to aluminum, the other material commonly used in sidewall construction. For insulation, the Company uses polyurethane foam and polystyrene. The Company's motorhomes are also built with attention to aerodynamics. Each motorhome has a streamlined bus-front cap that tapers to a width broader at the junction with the sidewalls than at the leading edge of the nose. That styling, coupled with rounded corners throughout the coach, permits a smoother ride, particularly in high winds or when the motorhome is passed by large trucks and trailers. The Company currently offers six lines of Class A motorhomes. The product lines are Aerbus, Rexair, RoseAir, Vision, Anthem and American Clipper. The Company's Class A line offers many models and floor plans with multiple decors. These various models come with the following chassis and engine types (See Item 1. Raw Materials and Chassis.): - Ford F-53 chassis with a V-10 electronically fuel injected engine - Workhorse chassis with the 290 H.P. Vortec engine - Spartan Mountain Master chassis with a 300, 315 or 330 H.P. diesel engine - Spartan Summit chassis with a 260 H.P. diesel engine Models range in size from an overall length of approximately 23 feet to approximately 39 feet with wheelbase ranging from 158 inches to 252 inches. All models have an overall maximum width of eight and one half feet (102" widebody) with a height (with air conditioner) of just over eleven feet. In addition to size of chassis, Rexair, Aerbus, RoseAir, Vision, Anthem and American Clipper models are differentiated by exterior graphics, floor plans and sleeping accommodations. Depending on the model, each motorhome is equipped to sleep four to six adults comfortably. Standard features and equipment on all Rexhall models include 60 or 100 gallon gas tank (depending on chassis and model), halogen headlights, dash air conditioning, double door flush mounted refrigerator/freezer, three burner range with automatic pilot and optional conventional oven, radial tires, stabilizing air bags, 34,000 or 35,000 B.T.U. furnace, day/night shades and extra large batteries mounted on a slide-out tray for easy access and service. Additional standard equipment includes a television, television antenna, AM/FM stereo radio with cassette player, auxiliary power generators, microwave oven, roof air conditioners, and video cassette recorder. Optional equipment includes leak detector for propane, back up camera, washer and dryer, hydraulic leveling jacks, electric and heated mirrors, 50 AMP service, ice maker and power entry step for easier entry into the motorhome. Some models may vary in standard equipment. Suggested retail prices of Aerbus, Rexair, or RoseAir models with standard equipment range from $75,000 to $148,000 and fully equipped with available options from $82,000 to $175,000. Suggested retail prices for the Vision and American Clipper models (entry level) with standard equipment range from approximately $70,000 to $88,000 (add $3,000 with available options). Anthem diesel models range from $99,000 to $105,000 with standard equipment, and with available options from $110,000 to $130,000. In 2000, the Company introduced two new entry level diesel products, the American Clipper ES and the Vision ES diesel pushers. The initial marketing strategy dictated an MSRP of $89,965 with no optional equipment available. Specialty Vehicles In addition to its line of Class A motorhomes, the Company also manufactures and sells specialty vehicles. These vehicles are designed for diverse purposes and varied users from the disabled to mobile command posts for police and fire departments and even mobile classrooms. During 2000, 1999, and 1998, sales of specialty vehicles amounted to less than 1% of total revenues. Although the Company has no intention of phasing out its specialty vehicle business, it anticipates that such business will constitute a low percentage of the Company's overall revenues in the future. Production The Company's manufacturing facility has been designed to permit production of motorhomes on an assembly-line basis. At the beginning of the line and in an effort to achieve uniformity, a partial steel cage is pre-assembled by the Company on a jig. The steel cage is welded together on the jig and then welded to a wall that is welded directly to the chassis to form what the Company terms a "uni-body" design. Steel outriggers are welded in place to support floor and basement storage compartments. Seamless gel coated fiberglass is vacuum bonded to a steel frame to form the exterior walls; additionally, the roof wall is vacuum bonded. When all the exterior walls are in place, polyurethane foam insulation is sprayed inside the ceiling radius to fill voids and further bond the exterior shell to the frame. Exterior doors and interior paneling complete the basic construction. Vehicle components, cabinet work, auxiliary power units, appliances, plumbing fixtures, floor coverings, window treatments, hardware, furniture and furnishings are then added. These components are generally purchased in finished form from various suppliers, none of which are a sole source. The Company manufactures its own drivers door, compartment doors, grills, bumpers, cabinet work, draperies, fiberglass parts and also makes some of the furniture used in its motorhomes. The Company plans to continue this practice of producing many of the components and certain of the production equipment used in the manufacturing of its motorhomes as long as such practice is practical and results in cost savings. The Company operated one production shift, producing an average of 83 units per month during 2000. Total gross units produced in 2000 was 993 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, lumber, plywood and plastic. These materials are purchased from third parties and are generally available from numerous sources. The Company has not experienced any significant delays or problems in acquiring raw materials needed for production. The principal component used in the manufacturing process is the chassis, which includes the engine and drive train. The Company obtains front engine chassis from Ford Motor Company (Ford) and Workhorse Custom Chassis, LLC (formerly, part of GM Corporation). Rear engine pushers are purchased from Spartan Motors. The Company acquires Ford products under a converters agreement which is used by the Company to purchase the chassis with financing provided by the supplier's affiliate. The financing provided to obtain Ford chassis under the converters agreement bears interest at the rate of prime plus 1% (10.5% at December 31, 2000) and is secured by the Ford merchandise. Upon starting production of the motorhome, the Company is required to pay to the lender the amount advanced for the purchase of the underlying chassis plus accrued interest. The chassis' from Spartan and Workhorse have net 30 day terms. Approximately 75% of all chassis were purchased from Ford. Ford Motor Company reacted to lower than anticipated chassis orders by varying production of its chassis. This has resulted in a sporadic flow of chassis to the Company. Anticipation of this by the Company resulted in sufficient availability for the company's production needs. The Company anticipates more consistent availability in 2001. As is standard in the industry, arrangements with chassis suppliers provide that either the Company or the chassis supplier may terminate their relationship at any time. To date, the Company has not experienced any substantial shortages of chassis. The recreational vehicle industry as a whole has from time to time experienced shortages of chassis due to the concentration or allocation of available resources by suppliers of chassis to the manufacturers of vehicles other than recreational vehicles or for other causes. If Ford were to discontinue the manufacturing of motorhome chassis or substantially reduce the current chassis allocation, or if as a group all of the Company's chassis suppliers significantly reduced the availability of chassis to the industry, the Company could be adversely effected. Diesel pusher production increased considerably in 2000 as a percent of the Company's overall production. This has resulted in increased diesel chassis orders. Production capabilities of Spartan Motors appears sufficient to meet the anticipated demand in 2001. Sales and Distribution Sales are usually made to dealers on terms requiring payments within ten days or less of the dealer's receipt of the unit. Most dealers have floor plan financing arrangements with banks or other financing institutions under which the lender advances all, or substantially all, of the purchase price of the motorhome to the Company upon shipment to the dealer. The loan is collateralized by a lien on the purchased motorhome. As is customary in the industry, the Company has entered into repurchase agreements with these lenders. In general, the repurchase agreements provide that in the event of default by the dealer on its agreement to the lending institution, the Company will repurchase the motorhome so financed. Dealers do not have the right to return motorhomes, except by statute in some states. The Company's contingent liability under the repurchase agreements is limited to the total unpaid balance (including 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 end-users. At December 31, 2000 and December 31, 1999, the Company's contingent liability was approximately $26,700,000 and $34,200,000 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, upon resale of the units, have been minimal. Advertising and Promotion The Company advertises its motorhomes to consumers in recreational vehicle magazines and to dealers in trade publications and also uses point-of-purchase promotional materials. Its promotional activities generally consist of participation at three major recreational vehicles shows (California RV Show in Pomona, CA, Louisville Show in Kentucky and Tampa Super Show in Florida) held during the year, as well as local recreational vehicles shows held by its dealers. The company also advertises its product on the World Wide Web under the following site: http://www.rexhall.com. E-Mail responses from consumers shows great promise for this advertising media. Seasonality and Backlog The recreational vehicle business generally has been seasonal with most sales occurring in the months of February through October, with November through January sales generally being considerably slower. Historically, the Company does not maintain a significant inventory of finished motorhomes. Production is based on dealer orders and shipments which usually occur within four to eight weeks of the receipt of an order. At December 31, 2000, 1999 and 1998, the Company's backlog of dealer orders were $6,351,000, $9,724,000, and $15,232,000 respectively. The Company believes that backlog is not necessarily a reliable indication of future sales because dealer orders not only fluctuate but, by industry customs, may be canceled without penalty and because motorhomes have a relatively short manufacturing cycle. Product Warranty The Company currently provides retail purchasers of its motorhomes with a limited warranty against defects in materials and workmanship for 12 months or 12,000 miles and a limited structual warranty on the steel cage for five (5) 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 $900,000, $1,386,000, and $1,041,000, for the years ended December 31, 2000, 1999, and 1998 respectively. The fluctuations in warranty cost were primarily attributed to fluctuations in sales as well as units produced at the Indiana facility which was closed in 1998. In most cases,warranty work is performed by a member of the Company's dealer network or by the Company's own service facility in Lancaster, California. Management believes that the Service Center allows the Company the benefit of providing better customer service and satisfaction. Competition and Other Business Risks Competition in the manufacture and sale of motorhomes and other recreational vehicles is intense. The Company has been manufacturing Class A motorhomes for fourteen years and competes with many manufacturers (such as Fleetwood, National RV, Damon, Thor Industries, and Coachman), several having multiple product lines of Class A motorhomes and other recreational vehicles and most being larger and having substantially greater financial and other resources than the Company. The Company sells motorhomes in most of the 50 states. Additionally, the Company sells to dealers in Canada. The Company believes that the quality, design and value offered by its motorhomes to be appealing to the consumer market. The Company, like others in the recreational vehicle industry, is dependent upon the availability of chassis from both Ford, Workhorse Chassis, LLC (formerly part of GM), and Spartan and upon terms of financing to dealers and retail purchasers. Substantial increases in interest rates, the tightening of credit, a general economic downturn or other factors negatively affecting the amount of consumer's disposable income and confidence could have a material adverse impact on the Company's business. Shortage of gasoline, or a substantial increase in the price, has in the past had a materially adverse effect on the recreational vehicle industry as a whole and could have a materially adverse effect on the Company's business in the future. Forward-Looking Statements & Risks Our report contains forward-looking statements, usually expressed as our expectations 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. Its business is also subject to increases in materials costs, and pricing and other pressures from substantially larger competitors, labor disruptions, and adverse weather conditions. The recreational vehicle industry has in the past enjoyed favorable recreational vehicle industry sales when we have low interest rates, low unemployment, and ready availability, and moderate prices for motor fuel. Management intends to remain aware of these factors and react to them, but cannot control them or predict their timing or significance. Regulation The Company is subject to the provisions of the National Traffic and Motor Vehicle Safety Act and the safety standards for recreational vehicles and components which have been promulgated thereunder by the Department of Transportation. The regulations under that legislation permit the National Highway Traffic Safety Administration to require a manufacturer to remedy vehicles containing "defects related to motor vehicle safety" or vehicles that fail to conform to all applicable Federal Motor Vehicles Safety Standards. The National Traffic and Motor Vehicles Safety Act also provides for the recall and repair of recreational vehicles that contain certain hazards or defects. The Company is subject to the provisions of Transport Canada for vehicles exported to Canada. The regulations under that legislation are similar in nature and design to its American counterparts. The Company relies on certifications obtained from chassis suppliers with respect to compliance of the Company's vehicles with applicable emission control standards and load bearing capacity. The Company believes that its facilities and products comply in all material respects with applicable environmental regulations and standards. The Company is also increasingly subject to regulations by the various states, with respect to relations with its dealers. The Company is a member of the RVIA (Recreational Vehicle Industry Association). This association has promulgated stringent standards for health and safety in connection with the manufacture of recreational vehicles. Each of the units manufactured by the Company has a RVIA seal placed upon it to certify that such standards have been met. The Company's facility is periodically inspected by government agencies and the RVIA to ensure that the Company's motorhomes comply with applicable governmental and industry standards. Patents and Trademarks The Company claims "Rexhall®", "Aerbus", "Rexair®", "RoseAir", "Vision®", "Anthem", and "American Clipper" as trademarks but believes its business is not dependent on these names or any other marketing device. The Company does not have any patents or licenses in the conduct of its business. Employees At December 31, 2000, the Company had a total of 381 employees (380 in California and 1 in Indiana). None of the Company's employees is represented by a labor union. The Company considers its relations with its employees to be good. Item 2. Properties In December 1995, the Company completed construction and moved into a 87,000 square foot manufacturing facility in Lancaster, California which serves as both a manufacturing facility and the Company's Corporate Headquarters. The facility was designed by management to insure efficiency and to specifically position the company with the opportunity to meet increased production demands. In September 1996, expansion construction began at the Lancaster site. The new addition, completed in the fourth quarter of 1997, provided an additional 19,320 square feet of production space. The Lancaster manufacturing plant is debt free with no mortgages on the facility. Until December 17, 1999, the Company owned a 97,000 square foot production facility on 12 acres in Elkhart, Indiana. The Elkhart facility was debt free with no mortgages on the property. The production facility was used to manufacture motorhomes until December 30, 1997 when the company decided to cease production at the Elkhart facility. As a result of this decision to restructure its operations, the Company recorded a charge to operations of $1,042,000 in 1997. The company retained its wholesale motorhome sales, warranty and service operations at the location throughout 1998. The Company sold the Indiana facility to a third party on December 17, 1999 and recorded a gain of $573,000. In September 1995, the Company purchased a 4.5 acre site located in Lancaster, California to serve as the Company's RV Service Center. The site contains a 40,000 square foot facility and was purchased from the City of Lancaster's Redevelopment Agency for $980,000. At December 31, 2000, the Company was indebted to the City of Lancaster Redevelopment Agency for an amount of $738,000 with interest at 5.93% per annum due through October 2015. Since December 1997, the Company has leased a portion of the facility to a third party, which the lessee is a major RV retail dealer. In September 1996, the Company purchased a 4,500 square foot facility located one mile east of Elkhart, Indiana. The facility has 1,500 sq. ft. of office space and a 3,500 sq. ft. warehouse area. At December 31, 2000, this property is available for sale. Rexhall Industries, Inc. has entered into a tentative agreement with the City of Lancaster to acquire 14 acres adjacent to its headquarters in Lancaster, CA. The agreement will require Rexhall to provide jobs in the Lancaster Enterprise Zone in exchange for the property and tax credits. If Rexhall does not fulfill all covenants of the agreement by January 31, 2012, at that time, Rexhall will be required to pay $613,453, which is less than the present market value. The purchase agreement is expected to be finalized in fiscal 2001 engine diesel motorhome. 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 ready the site for the retail sale and service of motorhomes. In December 2000, the Company and Mr. William J. Rex, President & CEO, purchased 1.7 acres in Acton, CA for $401,000. The Company and Mr. Rex each paid 50% of the purchase price and will share equally in the construction of a building on the property. The Company plans on using its half of the land and building as an off-site prototype shop, while Mr. Rex intends to use his half for personal endeavors outside the Company's scope of business. The Company believes its facilities are adequate to meet its foreseeable needs. Item 3. Legal Proceedings The class action lawsuit Masterjohn et al vs. Rexhall, et al, Case No. 752188 filed in the Superior Court of Orange County, California has been settled on October 2, 1998. Under the Settlement Agreement Rexhall paid $825,000 in cash, and issued one coupon per vehicle owned by members of the class for $1,250 towards the purchase of a new Rexhall vehicle or $200 toward service, parts and labor. New vehicle coupons expired on December 31, 2000 while service, parts, and labor coupons expired on December 31, 1999. Coupons were redeemable at Rexhall's Lancaster, California Service Center, as well as other designated dealerships geographically dispersed. The total number of vehicles owned by class members was estimated at approximately 5,000. During 1997 the Company recorded a charge and established a liability of $1,590,000 related to this settlement. During the fourth quarter of 1999, the Company released $604,000 of the settlement reserve due to less than expected coupon redemption rates. At December 31, 2000, the Company has no remaining liability under the settlement agreement. Other than the above referenced cases, the Company is a defendant in other various legal proceedings resulting from the normal course of business. In the opinion of company management, the resolution of such matter will not have a material effect on its financial statements or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to the vote of security holders during the fourth quarter of 2000. 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 1998 according to NASDAQ: 2000 High Low First Quarter $10.38 $ 7.75 Second Quarter 9.13 5.06 Third Quarter 5.44 4.28 Fourth Quarter 6.00 4.25 1999 High Low First Quarter $ 9.17 $ 7.62 Second Quarter 12.26 7.50 Third Quarter 12.62 9.50 Fourth Quarter 11.75 8.38 1998 High Low First Quarter $ 5.19 $ 4.53 Second Quarter 7.63 4.44 Third Quarter 9.38 5.13 Fourth Quarter 9.00 4.75 Holders At March 29, 2001, the Company had 62 shareholders of record. Item 6. Selected Financial Data. The following selected financial information of the Company should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto of the Company included elsewhere herein. The following table presents selected historical financial data of the Company for each of the five fiscal years in the period from December 31, 1996 through December 31, 2000. The financial information as of and for each of the five years in the period ended December 31, 2000 were derived from audited financial statements of the Company. Statement of Operations Data: (in thousands, except share and per-share data) Year Ended December 31 2000 1999 1998 1997 1996 Net Revenues $65,175 $ 84,739 $ 72,254 $ 63,012 $ 64,959 Cost of Goods Sold 54,663 69,659 59,314 55,921 56,167 Gross Profit 10,512 15,080 12,940 7,091 8,792 Selling, General, and Administrative Expenses 6,785 7,597 7,549 7,286 6,426 Restructuring Charge --- --- (282) 1,042 --- Income (Loss) from Operations 3,727 7,483 5,673 (1,237) 2,366 Interest Income 265 256 157 3 29 Interest Expense (521) (208) (101) (134) (171) Legal Settlement --- 604 --- (1,590) --- Other Income(Expense), net 186 151 135 46 (93) Gain on Sale of Fixed Assets --- 573 --- --- --- Income (Loss) Before Income Taxes 3,657 8,859 5,864 (2,912) 2,131 Income Taxes Expense (Benefit) 1,384 3,557 2,474 (1,077) 847 Net Income (Loss) $ 2,273 $ 5,302 $ 3,390 ($ 1,835) $ 1,284 Net Income (Loss) Per Share - Basic $ .73 $ 1.68 $ 1.09 ($ .61) $ .41 Net Income (Loss) perShare - Diluted $ .73 $ 1.68 $ 1.08 ($ .61) $ .41 Weighted Average Shares Outstanding - Basic 3,116,000 3,161,000 3,118,000 3,032,000 3,098,000 Weighted Average Shares Outstanding - - Diluted 3,116,000 3,161,000 3,140,000 3,032,000 3,148,000 Balance Sheet Data: (in thousands) As of December 31, 2000 1999 1998 1997 1996 Working Capital $16,689 $16,289 $10,769 $ 7,320 $ 9,483 Total Assets 39,609 36,162 28,449 23,156 23,460 Long Term Debt Less Current Portion 705 737 767 797 826 Shareholders Equity $22,362 $20,272 $14,970 $11,444 $13,545 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, 2000 1999 1998 Net Revenues 100.0% 100.0% 100.0% Costs of goods sold 83.9 82.2 82.1 Gross profit 16.1 17.8 17.9 Selling, general, and administrative expenses 10.4 9.0 10.4 Restructuring charge --- --- (.4) Income from operations 5.7 8.8 7.9 Legal Settlement --- .7 --- Other Income, net .1 .2 0.2 Gain on sale of fixed assets --- .7 --- Income before income taxes 5.6 10.4 8.1 Income tax expense 2.1 4.1 3.4 Net income 3.5% 6.3% 4.7% Management Discussion and Analysis Overview The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. As is generally the case in the recreational vehicle industry, various factors can influence sales. These factors include demographics, changes in interest rates, competition, restrictions on the availability of financing for the purchase of recreational vehicles as well as significant changes in the availability and price of of gasoline. The Company's business is also seasonal in that normally the majority of sales occur in the second and third quarter. Prior to 1998, the Company operated two manufacturing divisions, Lancaster, California and Elkhart, Indiana. During 1997, the Company's Board of directors adopted a formal plan of restructuring whereby the Company implemented a plan to cease production operations at its Elkhart, Indiana manufacturing plant and potentially sell all or part of the real estate the facility occupied. This decision was based upon the Company's evaluation of costs and the product quality of the recreational vehicles being produced in Elkhart. Concurrent with this decision, the Company completed an expansion of its Lancaster facility to accommodate the expected rise in production. Throughout 1998 the Company retained its wholesale motorhome sales, warranty and service operations at the Indiana production facility. In December 1999, the Company sold the Indiana facility. Two key transactions adversely impacted the Company's results of operations during 1997. In addition to the aforementioned restructuring charge for the production closure of the Elkhart facility, the Company reached a settlement of an existing class action lawsuit against the Company. Pursuant to the settlement, the Company was required to pay $825,000, plus issue coupons to all members of the class for a discount of $200 on future repairs or $1,250 towards the purchase of a new Rexhall vehicle. The Company reported the impact from these transactions as charges in the accompanying statement of operations aggregating $1,042,000 for the restructuring and $1,590,000 for the lawsuit settlement during 1997. During 1998, the Company's restructuring effort was completed and $282,000 of the restructuring charge was reversed. In the fourth quarter of 1999, $604,000 of the legal settlement was reversed as a result of less than expected coupon redemptions. To counter the short-term and long-term effects of the bankruptcy of the Company's largest dealer in 2000, the Company established it's own retail operations in Mesa, Arizona, Price I, Inc. dba Price One RV. Under the terms of the repurchase agreements with the bankrupt dealer's lenders, while the Company was only obligated to repurchase $1.2 million of motorhomes, they elected to repurchase $4.2 million in order to keep this inventory from being dumped on the market at substantially lower prices. As of December 31, 2000, the Company had resold $2.7 million of the repurchased inventory. The retail operations at Price One RV did not begin in earnest until October of 2000, but Management expects this to become a profitable venture for the Company. It is not certain how long the Company will maintain its retail operations due to ever changing market conditions and government regulations. Result of Operations Comparison of the Year Ended December 31, 2000 to Year Ended December 31, 1999 Net revenues for the year ended December 31, 2000, were $65.2 million, compared to $84.7 million for 1999, a decrease of $19.5 million or 23.0%. The number of units shipped,net of repurchase units, in 2000 decreased 388 to 861 in 2000 from 1,249 in 1999, a decrease of 31.1%. The average net selling price increased approximately 12% during the period due to a higher mix of diesel units and units with double slides. The decline in net revenues is primarily attributable to the first down market in years for Class "A" motorhomes and the bankruptcy of the Company's largest dealer. Management believes the driver of the overall down turn in the market is declining consumer confidence since the stock market started dropping in March of 2000. This triggered a domino effect that led to a tightening of credit for retail dealers and consumers. Management cannot determine when these conditions will improve. Gross profit for the year ended December 31, 2000 decreased to $10.5 million from $15.1 million for 1999, a decrease of $4.6 million or 30.5%. The gross margin for 2000 was 16.1% as compared to 17.8% for 1999. The decrease in sales created a smaller absorption base for manufacturing overhead, which was the primary driver behind the decrease in gross margin. Manufacturing overhead includes costs such as depreciation, indirect labor, shop supplies, utilities, insurance, etc. The nature of these costs is less variable than materials and labor, so overhead absorption suffers in periods of quickly declining base. Management believes that prudent steps were taken to reduce these costs as market conditions dictated, and this small decline in gross margin compares favorably to the rest of the industry. Selling, general and administrative expenses (SG&A) for the year ended December 31, 2000 were $6.8 million, compared to $7.6 million for 1999, a decrease of $0.8 million or 10.5%. This reduction was primarily attributed to lower warranty costs and management's quick reaction to market conditions by holding these costs down. Despite those actions, the 23% reduction in sales caused SG&A to increase as a percent of net revenues from 9.0% in 1999 to 10.4% in 2000. The Company's effective income tax rate was 37.8% for the year ended December 31, 2000 as compared with 40.2% for 1999. Basic and diluted net income per share was $.73 and $.73 respectively, for the year ended December 31, 2000, as compared to basic and diluted net income per share of $1.68 and $1.68, respectively, in 1999. The decrease in basic and diluted net income per share was due to decreased net revenues and the effects of the legal settlement and gain on sale of fixed assets during 1999, which were not a source of income in 2000. Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998 Net revenues for the year ended December 31, 1999, were $84.7 million, compared to $72.3 million for 1998, an increase of $12.4 million or 17.3%. The number of units shipped in 1999 increased 127 to 1,249 in 1999 from 1,122 in 1998, an increase of 11.3%. The average net selling price increased approximately 5% during the period. The increase in average per unit selling price results from a 75% increase in diesel model sales over the prior year and continued increases in double slide unit sales (50%). The increases in these higher priced models were complimented by the strong demand for Rexhall's lower priced Vision and American Clipper models, whose sales increased by 30% over 1998 sales. Gross profit for the year ended December 31, 1999 increased to $15.1 million from $12.9 million for 1998, an increase of $2.2 million or 17.1%. The gross margin for 1999 was 17.8% as compared to 17.9% for 1998. The increase in gross profit remained steady as the Company was able to hold most material costs stable and pass on the few increases that were necessary. While there was no material change in production labor cost, the introduction of the millennium edition motorhome in late 1999 resulted in a temporary increase in direct labor costs. Selling, general and administrative expenses (SG&A) for the year ended December 31, 1999 were $7.6 million, compared to $7.5 million for 1998. Overall, SG&A expense remained relatively unchanged from the prior year. Within this cost category several areas of cost increased in conjunction with sales but were offset by other reductions in cost. The decrease in selling, general and administrative expenses as a percentage of net revenues from 10.4% in 1998 to 9.0% in 1999 results from the increased sales level while maintaining the level of administrative spending. At December 31, 1999, the Company's most significant obligations under the Masterjohn legal settlement had been completed. As a result of the less than expected coupon redemptions, the Company re-evaluated the required legal settlement reserve resulting in the reversal of $604,000. The remaining $125,000 represents the estimated utilization of $1,250 coupons for new motorhome purchases. On December 17, 1999, the Company sold its Indiana manufacturing facility. The sale resulted in a pre-tax gain of $573,000 for the year ended December 31, 1999. The Company halted production at the 97,000 square foot Indiana factory in 1999 as it consolidated its operations in California. The Company's effective income tax rate was 40.2% for the year ended December 31, 1999 as compared with 42.2% for 1998. Basic and diluted net income per share was $1.68 and $1.68 respectively, for the year ended December 31, 1999, as compared to basic and diluted net income per share of $1.09 and $1.08, respectively, in 1998. The increase in basic and diluted net income per share was due to increased sales and decreased SG&A costs as a percentage of net revenues as well as the effects of the legal settlement and gain on sale of fixed assets during 1999 which were not expensed in 1998. 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, 2000, the Company had working capital of $16,689,000, compared to $16,289,000 at December 31, 1999, a $400,000 increase in working capital. Significant working capital increases are reflected in a $4,142,000 decrease in accounts payable, partially offset by a $1,104,000 decrease in accounts receivable, and a decrease of $2,903,000 in cash. Capital expenditures during 2000 were $1,910,000. Management anticipatesa lower level of capital expenditures in 2001. Cash flows from financing activities consisted primarily of the repurchase and retirement of stock on the open market of $547,000. Managment will continue to repurchase and retire stock during 2001 providing it continues to be a good investment of the Company's resources. As of December 31, 2000 the Company has a $3,500,000 line of credit with a bank which can be used for working capital purposes secured by equipment, inventory, and receivables. The line of credit expires July 1, 2001. Under this line of credit, $283,000 has been set aside as an irrevocable standby letter of credit for the Company to meet the requirements for self-insurance established by the Department of Industrial Relations which regulates workmen's compensation insurance in California. At December 31, 2000, no amounts were outstanding under the line of credit agreement. The line of credit contains various covenants. The Company was in compliance with such covenants at December 31, 2000. The Company has a line of credit with a chassis vendor, Ford Motor Credit Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line bear interest at an annual rate of prime plus 1% (10.5% at December 31, 2000). All borrowings are secured by the Ford merchandise. The outstanding balances included in accounts payable at December 31, 2000 and 1999 were $3,555,000 and $7,145,000 respectively. The Company has a line of credit with a financial institution for financing purchases of inventory for its retail operations. The line of has a limit of $7,500,000 and borrowings under the line bear interest at an annual rate of prime plue .5% (10% at December 31, 2000). All borrowings are secured by inventory held by the Company's retail operations. The balance outstanding at December 31, 2000 was $6,605,000. The Company anticipates that it will be able to satisfy its ongoing cash requirements through 2001, including payments related to the expansion plans at the California facility, primarily with cash flows from operations, supplemented, if necessary, by borrowings under its revolving credit agreement. New Accounting Pronouncements On March 31, 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensations - an interpretation of APB Opinion No. 25 (FIN44). This Interpretation provides guidance for issues that have arisen in applying APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards, and changes in grantee status that occur on or after July 1, 2000, except for the provisions related to repricings and the definition of an employee which apply to awards issued after December 15, 1998. The provisions related to modifications to fixed stock option awards to add a reload feature are effective for awards modified after January 12, 2000. The new Interpretation did not have a material impact upon the financial statements. Forward-Looking Statements Our statements of our intentions or expectations are "forward-looking statements" based on assumptions and on facts known to us today. Those assumptions will become less valid over time, but we do not intend to update this report. Rexhall's business is seasonal, and we are approaching the period when sales have usually declined. Low interest rates, low unemployment, and ready availability of motor fuel have in the past been associated with favorable recreational vehicle sales as has occurred in 1998 and 1999. However, the recent interest rate and gas prices increases, coupled with recent reports of decreased consumer confidence may reduce future sales levels. The seriousness of a potential decline cannot be predicted. Many of Rexhall's competitors are substantially larger, and of its suppliers and dealer's also have greater economic power so that the volume and prices of both supplies and sales may be adversely affected. Management intends to remain aware of these factors and react to them, but cannot predict their timing or significance. Item 7A: Quantitiative and Qualitative Disclosure about Market Risk In the ordinary course of its business the Company is exposed to certain market risks, primarily changes in interest rates. After an assessment of these risks to the Company's operations, the Company believes that its primary market risk exposures 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. Item 8. Financial Statements Independent Auditor's Report The Board of Directors Rexhall Industries, Inc. We have audited the accompanying consolidated balance sheets of Rexhall Industries, Inc. and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Los Angeles, California March 7, 2001 REXHALL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 ASSETS 2000 1999 CURRENT ASSETS Cash $ 3,427,000 $ 6,330,000 Accounts receivables, less allowance for doubtful accounts $100,000 in 2000, and $50,000 in 1999 5,832,000 6,936,000 Income Tax Receivable 281,000 --- Inventories 22,475,000 16,504,000 Deferred income taxes (note 6) 821,000 1,133,000 Other current assets 340,000 341,000 Total Current Assets 33,176,000 31,244,000 Property and equipment at cost net of accumulated depreciation (note 2) 6,152,000 4,753,000 Property held for sale (note 11) 127,000 131,000 Other assets 154,000 34,000 TOTAL ASSETS $ 39,609,000 $ 36,162,000 LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable (note 3) $ 6,773,000 $ 10,915,000 Notes Payable and current portion of long-term debt (note 5) 6,638,000 31,000 Warranty allowance 837,000 1,000,000 Accrued Legal (note 8) 445,000 737,000 Dealer Incentives 732,000 1,050,000 Other accrued liabilities 691,000 497,000 Accrued Compensation and Benefits 371,000 725,000 TOTAL CURRENT LIABILITIES 16,487,000 14,955,000 Deferred income taxes (note 6) 55,000 198,000 Long-Term debt, less current portion (note 5) 705,000 737,000 TOTAL LIABILITIES 17,247,000 15,890,000 SHAREHOLDERS' EQUITY Preferred Stock - no par value Authorized, 1,000,000 shares; No shares outstanding at December 31, 1999 and December 31, 2000 --- --- Common stock-no par value, Authorized, 10,000,000 shares, issued and outstanding; 3,057,000 at December 31, 2000 and 3,161,000 at 1999 (Note 9) 6,241,000 6,788,000 Loan receivable from exercise of options (Note 4) (57,000) (421,000) Retained earnings 16,178,000 13,905,000 TOTAL SHAREHOLDERS' EQUITY 22,362,000 20,272,000 Commitments and Contingencies (Note 3 and 7) TOTAL LIABILITIES AND SHAREHOLDER EQUITY $ 39,609,000 $ 36,162,000 See accompanying notes to financial statements REXHALL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 2000 1999 1998 Net Revenues (Note 10) $ 65,175,000 $ 84,739,000 $72,254,000 Cost of Sales 54,663,000 69,659,000 59,314,000 Gross Profit 10,512,000 15,080,000 12,940,000 Operating Expenses: Selling, General and Administrative Expenses 6,785,000 7,597,000 7,549,000 Restructuring Charge --- --- (282,000) Income from Operations 3,727,000 7,483,000 5,673,000 Other Income, net Interest Income 265,000 256,000 157,000 Interest Expense (521,000) (208,000) (101,000) Legal Settlement --- 604,000 --- Other Income (Expense),net 186,000 151,000 135,000 Gain on Sale of Fixed Assets --- 573,000 --- Income Before Income Taxes 3,657,000 8,859,000 5,864,000 Income Tax Expense (Note 6) 1,384,000 3,557,000 2,474,000 Net Income $ 2,273,000 $ 5,302,000 $ 3,390,000 Basic Net Income Per Share $ .73 $ 1.68 $ 1.09 Diluted Net Income Per Share $ .73 $ 1.68 $ 1.08 Weighted Average Shares Outstanding - Basic 3,116,000 3,161,000 3,118,000 Weighted Average Shares Outstanding - Diluted 3,116,000 3,161,000 3,140,000 See accompanying notes to financial statements REXHALL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 and 2000 COMMON STOCK LOAN RETAINED SHARES AMOUNT RECEIVABLE EARNINGS TOTAL BALANCE, December 31, 1997 2,714,000 6,267,000 (36,000) 5,213,000 11,444,000 Repurchase and Retirement of Stock (7,000) (63,000) --- --- (63,000) Exercise of Stock options 161,000 584,000 --- --- 584,000 5% Stock Dividend 142,000 --- --- --- --- Loans receivable from exercise of Stock options --- --- (385,000) --- (385,000) Net Income --- --- --- 3,390,000 3,390,000 BALANCE, December 31, 1998 3,010,000 $6,788,000 ($421,000) $ 8,603,000 $14,970,000 5% Stock Dividend 151,000 --- --- --- --- Net Income --- --- --- 5,302,000 5,302,000 BALANCE, December 31, 1999 3,161,000 $6,788,000 ($421,000) $13,905,000 $20,272,000 Repurchase and Retirement of Stoc (104,000) (547,000) --- --- (547,000) Repayment of loan receivable related to stock options --- --- 364,000 --- 364,000 Net Income --- --- --- 2,273,000 2,273,000 BALANCE, December 31, 2000 3,057,000 $6,241,000 (57,000) $16,178,000 $22,362,000 See accompanying notes to financial statements REXHALL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,273,000 $ 5,302,000 $ 3,390,000 Adjustments to reconcile net income to net cash provided by Operating Activities: Depreciation and amortization 364,000 368,000 344,000 Gain on sale of property, plant and equipment --- (573,000) --- Provision for deferred income taxes 169,000 (85,000) 1,311,000 (Increase) decrease in: Accounts receivable 1,104,000 (2,341,000) 747,000 Inventories 634,000 (3,730,000) (3,335,000) Income tax receivable (281,000) --- 337,000 Increase(decrease) in: Accounts payable (4,142,000) 2,957,000 1,846,000 Restructuring Reserve --- --- (605,000) Warranty allowance (163,000) 34,000 29,000 Accrued legal (292,000) (857,000) 344,000 Dealer incentives (318,000) 220,000 221,000 Other assets and liabilities 348,000 (300,000) 639,000 Net cash provided by operating activities (304,000) 995,000 4,580,000 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (1,759,000) (643,000) (482,000) Proceeds from sale of property and equipment --- 1,024,000 --- Issuance of notes receivable (151,000) --- --- Net cash provided by (used in) investing activities (1,910,000) 381,000 (482,000) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (30,000) (28,000) (28,000) Repayments on short-term notes (127,000) (35,000) --- Proceeds from exercise of stock options 15,000 --- 199,000 Repurchase and retirement of stock (547,000) --- (63,000) Net cash provided by (used in)financing activities (689,000) (63,000) 108,000 NET (DECREASE) INCREASE IN CASH (2,903,000) 1,313,000 4,206,000 BEGINNING CASH BALANCE 6,330,000 5,017,000 811,000 ENDING CASH BALANCE $ 3,427,000 $ 6,330,000 $ 5,017,000 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income taxes paid during the year $ 1,370,000 $ 4,056,000 $ 1,090,000 Interest paid during the year $ 283,000 $ 183,000 $ 101,000 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Loans to related parties for stock option exercise $ --- $ --- $ 385,000 Repayment of Loan receivable through cancellation of bonus liability $ 349,000 --- --- Notes payable for insurance policies $ 223,000 --- --- Inventory puchase on vehicle credit facility $ 6,605,000 --- --- See accompanying notes to financial statements 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, is a retailer of Class A motorhomes. Principles of Consolidation - The consolidated financial statements include the financial statements of Rexhall Industries, Inc. and our 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 on either a C.O.D. basis or on terms requiring payment within ten days or less of the dealer's receipt of the unit. Most dealers have floor plan financing arrangements with banks or other financing institutions under which the lender advances all, or substantially all, of the purchase price of the e motorhome. The loan is collateralized by a lien on the purchased motorhome. As is customary in the industry, the Company has entered into repurchase agreements with these lenders. In general, the repurchase agreements provide that in the event of default by the dealer on its agreement to the lending institution, the Company will repurchase the motorhome so financed. The Company has recorded an allowance for doubtful accounts to cover the difference between recorded revenues and collections from customers. The allowance for bad debts is adjusted periodically based upon the Company's evaluation of historical collection experiences, industry trends and other relevant factors. Inventories - Inventories are stated at the lower of cost or market value, determined using the first-in, first-out basis, or market. Costs include material, labor and applicable manufacturing overhead. Inventories consist of the following at December 31, 2000 and 1999: 2000 1999 Raw materials $ 6,561,000 $11,341,000 Work-in-Progress 1,810,000 2,485,000 Finished Goods 14,104,000 2,678,000 Total $22,475,000 $16,504,000 Depreciation and Amortization - Depreciation and amortization are computed based on the straight-line method over the estimated useful lives of the assets, which range from 3 to 31.5 years. Property held for sale is stated at the lower of cost or fair value less selling expenses realizable value and includes certain property and equipment no longer used in the Company's operation. Revenue Recognition - The Company derives revenue primarily from the sale of motorhomes to dealers across the United States. Revenue is recognized when title of the motorhome transfers to the dealer. This generally occurs upon shipment. Revenue from the Company's retail operations are recognized when merchandise is received by the customer. Revenues are shown net of repurchases. Revenues are also generated from the service of motorhomes and from shipment or installation of parts and accessories. Warranty Reserve Policy - The Company provides retail purchasers of its motorhomes with a limited warranty against defects in materials and workmanship for 12 months or 12,000 miles measured from date of purchase, or upon the transfer of the vehicle by the original owner, whichever occurs first. The Company's warranty excludes certain specified components, including chassis, engines 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 $900,000, $1,386,000 and $1,041,000 for the years ended December 31, 2000, 1999, and 1998, respectively. Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings per Share - Basic earnings per share represents net earning divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share represents net earnings divided by the weighted average number of shares outstanding, inclusive of the dilutive impact of common stock options, provided their impact is not anti-dilutive. See note 12. Use of Estimates -The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Segment Information - The Company's reportable business segments are manufacturing and retail operations. Management evaluates segment performance based primarily on revenue and net income (loss). Accounting for Stock Options - In October, 1995, Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensations ("SFAS No. 123"), was issued. This statement encourages, but does not require, a fair value based method of accounting for employee stock options The Company will continue to measure compensation costs under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and comply with the pro forma disclosure requirements of SFAS No. 123 in its annual financial statements. 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. Long-Term Debt: The fair value of the Company's long-term debt is approximates the current book value based on estimated quotations made on long-term debt facilities with similar quality and terms. Reclassifications - Certain reclassifications have been made to the 1999 and 1998 financial statements to conform to the 2000 presentation. 2. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2000 and 1999: Useful Lives (In years) 2000 1999 Building and Land 5,31.5 5,910,000 4,381,000 Furniture, fixtures and equipment 3-7 1,667,000 1,490,000 Autos and trucks 3-7 375,000 322,000 7,952,000 6,193,000 Less accumulated depreciation and amortization 1,800,000 1,440,000 Property and equipment, net $6,152,000 $4,753,000 3. LINES OF CREDIT The Company has available a $3,500,000 revolving line of credit with a bank expiring on July 1, 2001 secured by equipment, inventory, and receivable. The reference rate is the rate of interest publicly announced from time to time by the bank in San Francisco. At December 31, 2000, no amounts were outstanding under this line and $283,000 of standby letters of credit have been issued. All borrowings are collateralized by the Company's assets. The Company has a line of credit with a chassis vendor, Ford Motor Credit Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line bear interest at an annual rate of prime plus 1% (10.5% at December 31, 2000). All borrowings are secured by the Ford merchandise. The outstanding balances included in accounts payable at December 31, 2000 and 1999 were $3,555,000 and $7,145,000 respectively. 4. LOANS TO RELATED PARTIES: From time to time the Company makes loans to certain officers and key employees related to the exercise of stock options. During 1998, the Company advanced $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. These loans are full recourse loans and are 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, (4.47% at December 31, 2000). Loans extended for the exercise of incentive stock options are netted against equity. During 2000, an executive of the company repaid a portion of the outstanding loans and related accrued interest by foregoing the bonus liability that was due from the Company. The maturity date of certain notes outstanding are March 20, 2003. No loans for stock options were make to officers during 2000, and the outstanding balance at December 31, 2000 was $57,000. In December 2000, the Company and Mr. William J. Rex, President & CEO, purchased a partially completed building and 1.7 acres in Acton, CA 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 excutive's interest in the property. 5. NOTES PAYABLE AND LONG-TERM DEBT 2000 1999 Vehicle inventory credit facility; secured by the Company's inventory; interest rates of 10.0% at December 31, 2000 6,605,000 --- Promissory note payable to the City of 738,000 768,000 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 $900,000 at December 31, 2000. Total Notes Payable and Long-Term Debt. $7,343,000 $ 768,000 Less: Current Portion 6,638,000 31,000 Long-Term Portion $ 705,000 $ 737,000 The Company has a credit facility with a financial institution to finance the purchase of new and used vehicle inventory. The facility provides maximum borrowing of $7,500,000 of which $6,605,000 was outstanding at December 31, 2000. Borrowings under these facilities are secured by the Company's certain vehicle inventory which was $7,905,000 at December 31, 2000. Future annual minimum principal payments due on long-term debt (including current portion) as of December 31, 2000 are as follows: Year Ending December 31, 2001 $6,638,000 2002 35,000 2003 37,000 2004 39,000 2005 41,000 Thereafter 553,000 $7,343,000 6. INCOME TAXES The components of income tax expense are as follows: Years Ended December 31, 2000 1999 1998 Current: Federal 915,000 $2,884,000 $1,018,000 State 300,000 758,000 145,000 1,215,000 3,642,000 1,163,000 Deferred: Federal 159,000 (89,000) 950,000 State 10,000 4,000 361,000 169,000 (85,000) 1,311,000 $1,384,000 $3,557,000 $2,474,000 The components of deferred tax assets (liabilities) at December 31, 2000 and 1999 follows: 2000 1999 Current: Allowance for bad debts 40,000 16,000 Inventory reserves and unicap 145,000 88,000 Warranty accrual 332,000 237,000 Dealer incentives --- 195,000 Reserve for self insurance 112,000 133,000 Legal reserves --- 164,000 Other accrued liabilities 97,000 32,000 State tax 95,000 268,000 $ 821,000 $1,133,000 Non Current: Depreciation (55,000) (198,000) Net deferred tax assets $ 766,000 $ 935,000 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: Years Ended December 31, 2000 1999 1998 Income before income taxes $ 3,657,000 $ 8,859,000 $ 5,864,000 Statutory federal tax rate 34% 34% 34% Expected tax expense 1,243,000 3,012,000 1,994,000 State taxes net of federal effect 205,000 500,000 334,000 Permanent differences 5,000 36,000 6,000 Write off of income tax receivable --- --- 140,000 Other adjustments (69,000) 9,000 --- Provision for income taxes $ 1,384,000 $ 3,557,000 $ 2,474,000 7. COMMITMENTS AND CONTINGENCIES Repurchase Agreements - Motorhomes purchased under financing agreements by dealers are subject to repurchase by the Company under the terms of financing, at dealer cost plus unpaid interest in the event of default by the dealer. During 2000, the Company repurchased approximately $4,190,000 as a result of its obligations associated with the bankruptcy of its largest dealer. As of December 31, 2000, the Company had resold $2,690,000 of the repurchased inventory. Due to favorable negotiated repurchase prices, the effect on the Company was nominal. Additional obligations to repurchase under the Company's repurchase agreements amounted to approximately $150,000. At December 31, 2000 and 1999 approximately $26,700,000 and $34,200,000, respectively, of dealer inventory is covered by repurchase agreements. Dealers do not have the contractual right to return motorhomes under any Rexhall Dealer Agreement. There are also a number of state statutes which require the repurchasing of motorhomes whenever a dealership is terminated. Litigation -The Company was sued by Bruce Elworthy and Anne B. Marshall (Elworthy and Marshall) in June 1995 in the Superior Court of the County of Los Angeles. The complaint alleged that a leveling system on a motorhome purchased from Rexhall was defective and caused damages to Elworthy and Marshall of $1,000,000 for medical expenses, loss of earnings, and pain and suffering. Rexhall prevailed in its defense with zero dollars being awarded to the Plaintiffs. The verdict is currently under appeal by the Plaintiffs. Although the Company believes the final disposition of this matter will not have a material adverse effect on the Company's financial position or result of operations, if Elworthy and Marshall were to prevail on its liability claims, a judgment on appeal in a material amount could be awarded against the Company. Other than the above referenced case, the Company is a defendant in various other 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. 8. LEGAL SETTLEMENT Legal Settlement - The class action lawsuit Masterjohn et al vs. Rexhall, et al, Case No. 752188 filed in the Superior Court of Orange County, Californi was settled on October 2, 1998. Under the agreement Rexhall paid $825,000 in cash, and issued one coupon per vehicle owned by members of the class of $1,250 towards purchase of a new Rexhall vehicle or $200 toward service, parts and labor. New vehicle coupons expired December 31, 2000 while service, parts and labor expired December 31, 1999. Coupons were redeemable at Rexhall's Lancaster, California Service Center, as well as other designated dealerships geographically dispersed. The total number of vehicles owned by class members is estimated at approximately 5,000. The Company recorded a charge of $1,590,000 in 1997 relating to this settlement. During the fourth quarter of 1999, the Company released $604,000 of the settlement reserve due to less than expected coupon redemption rates. At December 31, 2000, the Company has no remaining liability under the settlement agreement. 9. STOCK INCENTIVE PLAN The Company has granted stock options under its Incentive and Nonstatutory Stock Option Plan (the "Plan"), which provides for the granting of (I) incentive stock options to key employees, pursuant to Section 422A of the Internal Revenue Code of 1986, and (ii) nonstatutory stock options to key employees, directors and consultants to the Company designated by the Board as eligible under the Plan. Under the Plan, options for up to 225,000 shares may be granted. Options granted and outstanding under the Plan expire in five years and become exercisable and vest in annual increments from two to three years. The maximum term of each option may not exceed 10 years. The following table summarizes the change in outstanding employee incentive stock options: Weighted Number of Range of Options Average Options Prices per Share Exercise Price Outstanding options at December 31, 1997 123,000 2.75 - 3.25 3.13 Options exercised (123,000) 2.75 - 3.25 3.13 Options canceled --- --- --- Outstanding options at December 31, 1998, 1999 and 2000 --- --- --- All stock options under the Plan are granted at the fair market value of the Company's common stock at the grant date. No options were granted to employees during 2000 and 1999 or 1998. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for the Plan. Accordingly, no compensation cost for the Plan has been recognized in 2000, 1999 or 1998. 10. SIGNIFICANT CUSTOMERS Sohn Corporation operates 3 Southern California locations and accounted for 13.8% of the Company's revenue in 2000. The Company had one major customer, RV World Productions aka RV Supercenter (five (5) Arizona locations), who accounted for 16% of the Company's net revenues during 1999. The Company had two major customers, RV World Productions aka RV Supercenter and Richardson's RV (five Arizona locations and three Southern California locations, respectively), who accounted for 14% and 11% respectively of the Company's net revenues during 1998. 11. PROPERTY HELD FOR SALE Property held for sale consisted of 12 acres of land in Elkhart, Indiana. A 97,000 square foot building resides on the property which used to house the Company's East Coast production facility. In fiscal 1997, the Company's Board of Directors adopted a formal plan of restructuring whereby the Company implemented a plan to cease production operations at this location. During 1998, the Company continued to operate a wholesale motorhome sales, warranty, and service operations at this location. During the year-ended December 31, 1998, the Company's Board of Directors approved a plan to sell the Elkhart property and facility in its entirety. On December 17, 1999, the Company sold the Elkhart, Indiana manufacturing facility land and building for total consideration of $966,000, net of executory costs. The accompanying results of operations for the year ended December 31, 1999 reflect the sale of such property and the resulting gain on sale of $573,000, net of executory costs. At December 31, 2000, the Company's customer service center in Elkhart, Indiana remained available for sale. The facility has 1500 square feet of office space and a 3500 square foot warehouse area with a net book value of $127,000 as of December 31, 2000. 12. INCOME PER SHARE The following is a reconciliation of the basic and diluted income per share computation for the year 2000, 1999 and 1998 (in thousands): Year ended December 31 2000 1999 1998 Net income used for basic and diluted income per share $2,273 $5,302 $3,390 Share of Common Stock and Common Stock equivalents: Weighted average shares used in basic computation 3,116 3,161 3,118 Weighted average stock options --- --- 22 Shares used in diluted computation 3,116 3,161 3,140 Income per share: Basic $ .73 $ 1.68 $ 1.09 Diluted $ .73 $ 1.68 $ 1.08 During the twelve months ended December 31, 2000, the Company repurchased 104,000 common shares on the open market at an average cost of $5.26 per share. 13. SEGMENT INFORMATION In accordance with the requirements of SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," the Company's reportable business segments and respective accounting policies, policies of the segments are the same as those described in Note 1. Management evaluates segment performance based primarily on revenue and net income (loss). Segment information is summarized as follows (in thousands): Dec. 31, 2000 Dec. 31,1999 Dec. 31, 1998 Net Revenues: Manufacturing $ 67,307 $ 84,739 $ 72,254 Retail Operations 1,745 --- --- Intercompany Elimination (3,877) --- --- $ 65,175 $ 84,739 $ 72,254 Net Income (Loss): Manufacturing $ 2,887 $ 5,302 $ 3,390 Retail Operations (139) --- --- Intercompany Elimination (475) --- --- $ 2,273 $ 5,302 $ 3,390 Total Assets: Manufacturing $ 33,311 $36,162 Retail Operations 8,095 --- Intercompany Elimination $ (1,797) $ --- $ 39,609 $36,162 14 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The results of operations for fiscal 2000 and 1999 are as follows: IN THOUSANDS, First Second Third Fourth EXCEPT PER SHARE DATA Quarter Quarter Quarter Quarter FISCAL 2000: Net Revenues $20,664 $15,090 $12,646 $16,775 Gross Profit 3,303 2,032 2,599 2,578 Income Before Income Taxes 1,655 655 883 464 Net Income 964 360 498 451 Basic and Diluted Net Income Per Share (1) .31 .11 .16 .15 FISCAL 1999: Net Revenues $22,233 $20,937 $20,590 $20,979 Gross Profit 4,139 3,666 4,016 3,259 Income Before Income Taxes 2,095 2,094 2,060 2,610 Net Income 1,259 1,248 1,251 1,544 Basic and Diluted Net Income Per Share (1) .40 .39 .40 .49 (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. Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure. None. Part III Item 10. Directors and Executive Officers of the Registrant. The executive officers and directors of the Company and their ages as of March 31, 2001 are as follows: Name Age Positions Held Director Term William J. Rex (1)) 50 Chairman of the Board of 6/01/96 thru Directors, CEO and President 5/31/01 Donald C. Hannay, Sr. 73 Vice President of 6/01/96 thru Sales & Marketing 5/31/01 Director Robert A Lopez (1) (2) 61 Director 6/01/96 thru 5/31/01 Frank A. Visco (1) (2) 56 Director 12/17/98 thru 5/31/01 Dr. Dennis K. Ostrom (2) 59 Director 7/12/99 thru 5/31/01 Cheryl L. Rex 48 Corporate Secretary (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Directors of the Company hold office until the next annual meeting of shareholders and until their successors are elected and qualified, or until their earlier resignation or removal. All officers are appointed by and serve at the discretion of the Board of Directors. The Company has an "executive officer" within the meaning of the rules and regulations promulgated by the Securities and Exchange Commission. Except for William J. and Cheryl Rex, who are husband and wife, there are no family relationships between any directors or officers of the Company. For their services as members of the Board of Directors, outside directors receive $500 for each Board meeting attended. Mr. Rex, a founder of the Company, has served as the Company's Chief Executive Officer from its inception as a general partnership to date. Upon commencing operations in corporate form, Mr. Rex became the Company's President and Chairman of the Board, offices which he continues to hold. From March 1983 until founding the Company, Mr. Rex served in various executive capacities for Establishment Industries, Inc., a manufacturer of Class A and Class C motorhomes which was acquired in June 1985 by Thor Industries, Inc., a large manufacturer of recreational vehicles. His last position with Establishment Industries, Inc. was President. From 1970 until March 1983, Mr. Rex was employed in various production capacities by Dolphin Trailer Company, a manufacturer of a wide range of recreational vehicles products. At the time he left Dolphin Trailer Company (which changed its name to National R.V., Inc. in 1985), Mr. Rex was Plant Manager in charge of all production and research and development. Mr. Hannay, Sr. joined the Company in December 1987 and is responsible for product sales. He became a Director in May 1989. From April 1982 until August 1987, he was employed by Establishment Industries, Inc. as Vice President, Sales and Marketing, where he built Establishment's dealer network and was responsible for dealer sales. From August 1987 until joining the Company, he was employed as General Sales Manager by Komfort Industries of California, Inc., a recreational vehicle manufacturer located in Riverside, California. Mr. Robert A. Lopez is President of Nickerson Lumber and Plywood. Mr. Lopez started his employment with Nickerson as an outside salesman in 1969 and in 1980 he became a partner and purchased Nickerson Lumber stock. He was elected as President of Nickerson in 1981. His background in marketing products is primarily to residential builders, manufactured housing and recreational vehicle assemblers. In his spare time, if any, Mr Lopez is captain of the San Fernando Rangers, a non-profit organization working to use horses as therapeutic conditioning for mentally and physically disabled children. Mr. Frank A. Visco was elected to the Board of Directors on December 17, 1998. Mr. Frank A. Visco is owner of Frank A. Visco & Associates insurance company. Mr. Visco began his insurance career in 1970 with New York Life Insurance Company as a Sales Manager in their Antelope Valley office. From 1975-1984 he was the co-owner of APS Co. Inc., producing aircraft parts for the aircraft industry. In 1980, in addition to his insurance activities, he began developing properties in Los Angeles County and Kern County. Dr. Ostrom was elected to the Board of Directors on July 12, 1999. Dr. Ostrom received his BS, MS and Ph.D. degrees in Engineering from the University of California, Los Angeles. He majored in structural mechanics and dynamics. Dr. Ostrom is a Professional Civil Engineer in the State of California. Dr. Ostrom was employed by Southern California Edison Company from 1970 - 1996. His position was that of a Consultant. His job was formulating technical strategy and policy and relating the same to the California Energy Commission, California Public Utilities Commission, Nuclear Regulatory Commission and local regulatory agencies. Dr. Ostrom has written several papers about risk management and how this relates to equipment purchasing and risk mitigation strategies, including insurance purchase decisions. While at Edison, he applied this expertise as a private consultant (with knowledge and consent of Edison) for other utilities and organizations, i.e., United States National Academics of Science and Engineering; Office of Technology Assessment, Congress of the United States; Coca Cola; Bonneville Power Authority; British Columbia Hydro; New Zealand Centre for Advanced Engineering; East Bay Municipal Utility District; Puget Sound and Power; Snohomish County Public Utility District; Central United States Earthquake Consortium; Tennessee Valley Authority; Eugene Water & Electric Board and Humbolt Bay Municipal Water District. From 1988 to present, Dr. Ostrom has been a member of the Board of Directors for Keysor Century, Inc., Saugus, California. Currently Dr. Ostrom is an ongoing consultant for San Diego Gas & Electric, Pacific Gas & Electric and Southern California Edison. In addition to his consulting work, Dr. Ostrum is the Planning Commissioner for the City of Santa Clarita. Mrs. Cheryl L. Rex is the Corporate Secretary and has been with Rexhall since 1986 serving in many different capacities. Mrs. Rex served as Administrative Operations Manager, in addition to being responsible for the interior design and decor of the motorhomes, as well as assisting in the production of the Company's product brochures. Item 11. Executive Compensation. Cash Compensation The following table sets forth certain information as to the five highest paid(1) of the Company's executive officers whose cash compensation exceeded $100,000 for the year ended December 31, 2000: SUMMARY COMPENSATION TABLE Annual Compensation Bonus Name and Accrued Other Annual Principal Position Year Salary ($) Bonus Paid Non-Paid Compensation (2) William J. Rex 00 250,000 See Note 3 5,000 --- 99 250,000 445,000 411,000 --- 98 250,000 295,000 310,000 --- Donald C. Hannay, Sr. 00 62,800 161,800 12,400 --- V.P. of Sales & Marketing 99 61,400 201,600 20,700 --- 98 52,000 178,000 --- --- James C. Rex 00 52,000 54,000 --- --- National Director of Service and Warranty (1) Note: Only two executive officers received cash compensation in excess of $100,000. (2) The unreimbursed incremental cost to the Company of providing perquisites and other personal benefits during 2000 did not exceed, as to any named officer, the lesser of $50,000 or 10% of the total 2000 salary and bonus paid to such named officer and, accordingly, is omitted from the table. These benefits included (i) reimbursement for medical expenses and (ii) amounts allocated for personal use of a company-owned automobile provided to Mr. Rex. (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 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. James C. Rex is the brother of Mr. William J. Rex. Compensation Committee Report On August 1, 1996, the Company renewed for 5 years (expires July 31, 2001) an employment agreement with William J. Rex. The employment agreement provides for an annual salary of $250,000 plus a bonus determined monthly equal to 10% of income before bonus and taxes. Other executive officers are compensated based on the following factors as determined by the Board of Directors: (1) the financial results of the Company during the prior year or sales commission, (2) compensation paid to executive officers in prior years, (3) extraordinary performance during the year and (4) compensation of executive officers employed by competitors. Directors who are not Executive Officers are paid $500 per Board Meeting and there are three to four Board Meetings per year. The Company also has an incentive program under which it pays supervisory employees involved in the sales and production a cash bonus based on specific performance criteria. Committee members: William J. Rex, Robert A. Lopez and Frank A. Visco. Stock Option Plan In May 1989, the Company adopted the 1989 Incentive and Nonstatutory Stock Option pursuant to Section 422A of the Internal Revenue Code of 1986, as amended, to (i) key employees, and (ii) to directors and consultants to the Company designated by the Board as eligible under the Option Plan. Under the Option Plan, options for up to 225,000 shares may be granted. The Option Plan is administered by the Board of Directors or by a committee appointed by the Board, which determines the terms of options granted, including the exercise price, the number of shares subject to the options, and the terms and conditions of exercise. No option granted under the Option Plan is transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable during the lifetime of the optionee only by such optionee. The exercise price of all stock options granted under the Option Plan must be at least equal to the fair market value of such shares on the date of grant, and the maximum term of each option may not exceed 10 years. With respect to any participant who owns stock possessing more than 10% of the voting rights of the Company's outstanding capital stock, the exercise price of any stock option must be not less than 110% of the fair market value on the date of grant and the maximum term of such option may not exceed five years. Stock appreciation rights are not authorized under the Option Plan. For the years ended December 31, 2000, 1999 and 1998, there were no options granted or canceled to key executives. At December 31, 2000 there were no options outstanding. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth information regarding the ownership of the Company's Common Stock by (I) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each of the Company's directors beneficially owning Common Stock and (iii) all of the Company's officers and directors as a group as of March 29, 2001: Number of Name of Beneficial Owner Shares Percent of Outstanding Beneficially Shares at or Identity of Group Owned (1) March 28, 2001 William J. Rex (1)..... 1,623,000 53.1% c/o Rexhall Industries 46147 7th Street West Lancaster, California 93534 All Directors and Officers as a Group (6 persons) 1,649,000 53.9% (1)The persons named in the table have sole voting and investment power with respect to all shares of Common Stock Shown as Beneficially owned by him, subject to applicable community property law. Item 13. Certain Relationships and Related Transactions. Robert A. Lopez, one of the Company's Directors, owns Nickerson Lumber, which sells the Company lumber at market rates. Purchases during 2000 and 1999, were less than $100,000 and $200,000, respectively. PART IV Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K Financial Statements See Item 8 Financial Statement Schedule All applicable financial statement schedules have been omitted since required information is not present in amount sufficient to require separate disclosure on the balance sheet or information is included in the financial statements. (3.0) Articles of Incorporation and By Laws. See 1992 10KSB (4.0) Instruments defining the rights of Holders of Common Stock. See Page 24 of Prospectus dated 6/22/89. See 1992 10KSB. (10.1) Revolving Credit Agreement dated May 22, 1998 between Company and Bank of America. Refer to original agreement and subsequent amendments. (10.2) Employee agreement of William J. Rex (10.3) Authorized Ford Motor Company Converter Pool Agreement effective 6/27/90. See 1992 10KSB (10.4)Incentive and Non-Statutory Stock Option Plan. (10.5) Material Contracts - Chevrolet Quality Approved Converter Program dated 10/1/88. See 1992 10KSB. (13.1) Supplemental information pursuant to Section 15D of Exchange Act 1) Proxy Statement dated 2000 2) 2000 Annual Report (13.2) Form 10Q is attached for 1st, 2nd, and 3rd quarter labeled (Exhibit 13) (22.0) Published report regarding matters submitted to vote (Proxy statement dated 1999) (27.0) Financial Data Schedule (28.0) Copy of State Insurance Annual Report for year ended 12/31/99 labeled (Exhibit 28). Signatures In accordance with Section 13 or a5(b) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized. Rexhall Industries, Incorporated (Registrant) By /S/ William J. Rex By /S/ J. Michael Bourne (Signature and Title)* (Signature and Title)* William J. Rex, President, J. Michael Bourne, CEO & Chairman Executive Vice President & COO Date: March 31, 2001 Date: March 31, 2001 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in capacities and on the dates indicated. By /S/ William J. Rex (Signature and Title)* William J. Rex President & CEO Chairman of the Board Date: March 31, 2001 By /S/ Donald C. Hannay, Sr. (Signature and Title)* Donald C. Hannay, Sr. Vice President of Sales & Marketing Director Date: March 31, 2001 By /S/ Robert A. Lopez (Signature and Title)* Robert A. Lopez Director Date: March 31, 2001 By /S/ Frank A. Visco (Signature and Title)* Frank A. Visco Director Date: March 31, 2001 By /S/ Dr. Dennis K. Ostrom (Signature and Title)* Dr. Dennis K. Ostrom Director Date: March 31, 2001 EX-27 2 0002.txt
5 12-MOS DEC-31-2000 DEC-31-2000 3,427 000 5,932 100 22,475 33,176 7,952 1,800 39,609 16,487 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000 000
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