10-Q 1 firstqtr01.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 2001 Commission file number: 0-17824 REXHALL INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) California 95-4135907 (State of Incorporation) (IRS Employer Identification No.) 46147 7th Street West, Lancaster California 93534 (Address of principal executive offices) (Zip Code) (661) 726-0565 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No _____. Applicable only to Corporate Issuers State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 3,036,350 as of 5/14/01. REXHALL INDUSTRIES, INC. INDEX PART 1 - FINANCIAL INFORMATION PAGE NUMBER Item 1. Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations for the three months ended March 31,2001 and March 31, 2000 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and March 31, 2000 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 Item 3. Quantitative and Qualitative Disclosure about Market Risks 10 PART II - OTHER INFORMATION Repurchase Agreements 10 Legal Proceedings 10 Signatures 11 PART I - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) (Audited) March 31, December 31, 2001 2000 CURRENT ASSETS Cash $ 4,014,000 $ 3,427,000 Accounts Receivable - Net 3,936,000 5,832,000 Inventories - Net 23,944,000 22,475,000 Income Tax Receivable 199,000 281,000 Deferred Income Taxes 821,000 821,000 Other Current Assets 256,000 340,000 Total Current Assets 33,170,000 33,176,000 Property and Equipment - Net 6,153,000 6,152,000 Property Held for Sale 125,000 127,000 Other Assets 175,000 154,000 TOTAL ASSETS $39,623,000 $39,609,000 LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 5,891,000 $ 6,773,000 Notes Payable and current portion of long-term debt 7,673,000 6,638,000 Warranty Reserve 646,000 837,000 Accrued Legal 401,000 445,000 Dealer Incentives 758,000 732,000 Other Accrued Liabilities 599,000 691,000 Accrued Compensation and Benefits 469,000 371,000 Total Current Liabilities 16,437,000 16,487,000 Deferred Income Tax Liabilities 55,000 55,000 Long Term Debt, less current portion 697,000 705,000 TOTAL LIABILITIES 17,189,000 17,247,000 SHAREHOLDERS' EQUITY Preferred Stock - no par value; Authorized 1,000,000 shares; No shares outstanding Common Stock - no par value; Authorized 10,000,000 shares; issued and outstanding 3,047,000 and 3,057,000 at March 31, 2001 and December 31,2000 6,191,000 6,241,000 Loan receivable from exercise of options (54,000) (57,000) Retained Earnings 16,297,000 16,178,000 TOTAL SHAREHOLDERS' EQUITY 22,434,000 22,362,000 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $39,623,000 $39,609,000 See accompanying notes to condensed consolidated financial statements. PART I - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31, 2001 March 31, 2000 Net Revenues $ 18,582,000 $ 20,664,000 Cost of Sales 16,077,000 17,361,000 Gross Profit 2,505,000 3,303,000 Selling, General, Administrative and Other Expenses 2,304,000 1,648,000 Income Before Income Taxes 201,000 1,655,000 Income Taxes 82,000 691,000 Net Income $ 119,000 $ 964,000 Basic and Diluted Net Income Per Common Share $ .04 $ .31 Weighted Average Shares Outstanding-Basic and Diluted 3,056,000 3,160,000 See accompanying notes to condensed consolidated financial statements. PART I - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 2001 March 31, 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 119,000 $ 964,000 Adjustments to reconcile net income to net cash provided by Operating Activities: Depreciation and Amortization 104,000 120,000 Gain on Sale of Property, Plant and Equipment (3,000) --- Provision for Deferred Income Tax --- 44,000 (INCREASE) DECREASE IN: Accounts Receivable 1,896,000 959,000 Inventories (434,000) 1,340,000 Income Tax Receivable 82,000 --- Other 63,000 52,000 INCREASE (DECREASE) IN: Accounts Payable (882,000) (2,653,000) Warranty Reserve (191,000) (39,000) Accrued Legal (44,000) (49,000) Other Current Liabilities 90,000 411,000 Dealer Incentives 26,000 (117,000) Net cash provided by operating activities 826,000 1,032,000 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Property, Plant and Equipment (185,000) (95,000) Proceeds from Sale of Property, Plant and Equipment 85,000 --- Net cash used in investing activities (100,000) (95,000) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (8,000) (7,000) Repayment of short-term notes (84,000) (36,000) Proceeds from Exercise of Stock Options 3,000 --- Repurchase and retirement of stock (50,000) --- Net cash used in financing activities (89,000) (43,000) NET INCREASE IN CASH 587,000 894,000 BEGINNING CASH BALANCE 3,427,000 6,330,000 ENDING CASH BALANCE $4,014,000 $ 7,224,000 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Inventory Purchases on Vehicle Credit Facility $1,035,000 --- See accompanying notes to condensed consolidated financial statements. PART I - FINANCIAL INFORMATION Item 1. REXHALL INDUSTRIES, INC. Notes to the Condensed Consolidated Financial Statements March 31, 2001 and 2000 1. Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, they include all adjustments, consisting of normal accruals, necessary to present fairly the information set forth herein in accordance with generally accepted accounting principles for interim reporting. For further information refer to the Financial Statements and footnotes included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 2. Summary of Significant Accounting Polices: Income Taxes Income tax expense is based upon the estimated effective tax rate for the entire fiscal year. The effective tax rate is subject to ongoing evaluation by management. Earnings Per Share Basic earnings per share represents net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share represents net earnings divided by the weighted-average number of shares outstanding, inclusive of the dilutive impact of common stock options. 3. Details of Inventory March 31, 2001 December 31, 2000 Raw Materials $ 5,706,000 $ 6,561,000 Work-in-Progress 1,859,000 1,810,000 Finished Goods 16,379,000 14,104,000 TOTAL $23,944,000 $22,475,000 4. 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). Segment information is summarized as follows (in thousands): March 31, 2001 March 31, 2000 Net Revenues: Manufacturing $ 15,508 $ 20,664 Retail Operations 5,210 --- Intercompany Elimination (2,136) --- $ 18,582 $ 20,664 Net Income (Loss): Manufacturing $ 262 $ 964 Retail Operations (108) --- Intercompany Elimination (35) --- $ 119 $ 964 March 31, 2001 December 31, 2000 Total Assets: Manufacturing $ 32,279 $ 33,311 Retail Operations 8,951 8,905 Intercompany Elimination (1,607) (1,797) $ 39,623 $ 39,609 PART I - FINANCIAL INFORMATION Item 2. - Management Discussion and Analysis of Financial Condition and Results of Operations. All statements in this discussion and analysis which relate to future sales, costs, capital expenditures or earnings are "Forward-Looking Statements" and should be read subject to the assumptions contained in the section "Forward-Looking Statements". Results of Operations Comparison of the Three Months ended March 31, 2001 to the Three Months ended March 31, 2000 Revenues - 2001 Compared with 2000 Net revenues for the first quarter ended March 31, 2001 were $18,582,000 as compared to $20,664,000 for the first quarter in 2000. This represents a 10.1% decrease from the prior year. Net revenues for the manufacturing operations were $15,508,000 on net shipments of 194 units, which were down 25% and 33%, respectively, when compared to the first quarter of 2000. Wholesale shipments of the Company's gas motorhomes were down 46%, while diesel motorhome shipments were up 93% when compared to last year's first quarter. Retail operations generated net revenues of $5,210,000 on sales of 33 new motorhomes, 31 used motorhomes, and 70 towables. Since the Company did not have retail operations in the first quarter of 2000, no comparisons can be made. Intercompany eliminations account for the difference between the total net revenues and the sum of manufacturing and retail operations. The decline in net revenues is primarily attributable to an industry-wide decline in Class "A" shipments of 35% when compared to last year. Poor RV industry fundamentals of weakened consumer confidence, a tightening of credit, and high fuel costs continue to be the driver of the overall down market. Management cannot determine when these conditions will improve. Gross Profit - 2001 compared with 2000 Gross profit for the quarter decreased to $2,505,000 from $3,303,000 for the same quarter last year, which is a decrease of $798,000 or 24.2%. The gross margin was 13.5% versus 16.0% last year. Gross profit for manufacturing operations decreased to $1,932,000 from $3,303,000 for the same quarter in 2000, which is a decrease of $1,371,000 or 41.5%. Gross margin was 12.5% as compared to 16.0% last year. The decrease in gross margin was attributable to lower sales and higher material and overhead costs absorbed by each unit. The decrease in sales created a smaller absorption base for manufacturing overhead. The nature of these costs is less variable than direct materials and labor, so overhead absorption suffers in periods of declining sales. Contrary to what the rest of the industry experienced, the Company did not have to significantly increase its level of rebates or discounts to hold market share. Retail operations' gross profit was $586,000 with a gross margin of 11.2%. Since the Company did not have retail operations in the first quarter of 2000, no comparisons can be made. Intercompany eliminations account for the difference between the total net revenues and the sum of manufacturing and retail operations. Management expects the margins to hold or improve, but there are no assurances due to the unknown direction of the RV industry fundamentals and competition within the industry. Selling, General Administrative and Other Expenses-2001 compared with 2000 Selling,General and Administrative and Other Expenses increased by approximately $656,000 from the first quarter of 2000 to the first quarter of 2001. Selling, general administrative and other expenses increased to 12.4% as a percentage of sales when compared to 8.0% for the quarter ended March 31, 2000. For manufacturing operations, S, G & A and other expenses decreased $152,000 to $1,496,000, but increased as a percentage of sales from 8.0% to 9.6% due to the decline in sales base. Retail operations' S, G & A and other expenses were $763,000 or 14.6% of sales. Retail operations typically have a higher percentage of expenses in these areas due to the nature of the business. Intercompany eliminations account for the difference between the total S,G, & A and other expenses and the sum of manufacturing and retail operations. Income Before Taxes - 2001 Compared to 2000 Income tax expense was $82,000 for the quarter ended March 31, 2001 as compared to $691,000 in the first quarter of 2000. Income taxes are provided based upon the estimated effective tax rate for the entire fiscal year applied to the pre-tax income for the period. The effective tax rate is subject to ongoing evaluation by management. Financial Condition, Capital Resources and Liquidity The Company has relied primarily on internally generated funds, trade credit and debt to finance its operations and expansions. As of March 31, 2001, the Company had working capital of $16,733,000, compared to $16,691,000 at December 31, 2000. The $42,000 increase in working capital is primarily due to a $587,000 increase in cash, a $1,469,000 increase in inventories and a $882,000 decrease in accounts payable, partially offset by a $1,896,000 decrease in accounts receivable and a $1,035,000 increase in notes payable. Capital expenditures during the first quarter of 2001 were $185,000. Management anticipates an increase in the rate of capital expenditures for the remainder of 2001 related to refurbishment and expansion of the production facilities and related production equipment. The anticipated increases are expected to be incurred when the Company begins construction of the new facility. As of March 31, 2001 the Company has a $3,500,000 line of credit with a bank which can be used for working capital purposes. The line expires on July 1, 2001 at which time we expect the line to be renewed. 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 March 31, 2001, no amounts were outstanding under the line of credit agreement. The line of credit contains various covenants. The Company was in compliance with such covenants as of March 31, 2001. The Company has a line of credit with a chassis vendor, Ford Motor Credit Company ("FMCC"), with an $8,000,000 limit. Borrowings under the line bear interest at an annual rate of prime plus 1% (10% at March 31, 2001). All borrowings are secured by the Ford merchandise. The outstanding balance included in accounts payable at March 31, 2001 was $3,413,000. The Company has a line of credit with a financial institution for financing purchases of inventory for its retail operations. The line of credit has a limit of $7,500,000 and borrowings under the line bear interest at an annual rate of prime plus .5% (9.5% at March 31, 2001). All borrowings are secured by inventory held by the Company's retail operations. The balance outstanding at March 31, 2001 was $7,640,000. The over limit was done at the financial institution's discretion and is without penalty to the Company. 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. 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 sales should be increasing now, but the market factors are depressing the industry sales. 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 gas price increases, coupled with recent reports of decreased consumer confidence are depressing the market and may reduce future sales. Many of Rexhall's competitors are substantially larger, and many of its suppliers and dealer's also have greater economic power so that the volume and prices of both supplies and sales may be adversely affected. Management intends to remain aware of these factors and react to them, but cannot predict their timing or significance Item 3. Quantitative and Qualitative Disclosure About Market Risk In the ordinary course of its business, the Company is exposed to certain market risks, including 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 of 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 rate fluctuations. Part II - Other Information Repurchase Agreements - Motorhomes purchased under financing agreements by dealers are subject to repurchase by the Company, in some cases, at dealer cost plus unpaid interest in the event of default by the dealer. During 2000, 1999 and 1998 the Company repurchased approximately $4,190,000, $1,973,000 and $832,000 respectively, of motorhomes under these agreements. At March 31, 2001 and December 31, 2000, approximately $25,800,000 and $26,700,000, 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 states statutes which require the repurchasing of motorhomes whenever a dealership is terminated. Item 1- Legal Proceedings Litigation -The Company is a defendant in various legal proceedings 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. REXHALL INDUSTRIES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. Rexhall Industries, Incorporated (Registrant) By /S/ William J. Rex (Signature and Title)* William J. Rex, President, CEO and Chairman Date: May 15, 2001 By /S/ J. Michael Bourne (Signature and Title)* J. Michael Bourne, Executive V.P., COO and Acting CFO Date: May 15, 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: May 15, 2001 By /S/ Donald C. Hannay, Sr. (Signature and Title)* Donald C. Hannay, Sr. Vice President of Sales & Marketing Director Date: May 15, 2001 By /S/ Robert A. Lopez (Signature and Title)* Robert A. Lopez Director Date: May 15, 2001 By /S/ Frank A. Visco (Signature and Title)* Frank A. Visco Director Date: May 15, 2001 By /S/ Dr. Dennis K. Ostrom (Signature and Title)* Dr. Dennis K. Ostrom Director Date: May 15, 2001