About Rexhall Industries, Inc.
REXHALL Industries is a manufacturer of Class A motorhomes entering
our 15th year of operation. Manufacturing began in 1986 in a renovated,
18,000 square foot recreational vehicle plant in Pacoima, California. As
orders increased, the Company quickly outgrew its modest facilities and moved
to an 80,000 square foot facility in Saugus, California. In June 1989
management decided to take the Company public, with an initial offering of
1.15 million shares of common stock trading on the NASDAQ Stock Exchange. In
1990 Business Week Magazine named Rexhall Industries the "Number One Best
Small Growth Company in America", out of 7,700 publicly traded companies.
These early milestones helped reinforce the philosophy of the Company and it
wasn't long before Rexhall was one of the top manufacturers of Class A
motorhomes nationally. In 1994, Rexhall started building its new Corporate
Headquarters in Lancaster, California. As part of the City of Lancaster's
redevelopment project, Rexhall was able to acquire 10 acres of land on which
to build a manufacturing facility and Corporate Headquarters, now encompassing
120,000 square feet of office and production space.
Financial Highlights
(in thousands, except per-share data)
2001 2000 1999 1998 1997
SALES $56,680 $66,957 $83,714 $71,454 $63,012
GROSS PROFIT 5,096 10,464 14,055 12,140 7,091
INCOME (LOSS)FROM
CONITNUING OPERATIONS
BEFORE TAXES (1,900) 4,361 8,859 5,864 (2,912)
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
(NET OF APPLICABLE TAX
BENEFITS) (695) (436) --- --- ---
NET INCOME (LOSS) (1,992) 2,273 5,302 3,390 (1,835)
WORKING CAPITAL 14,757 16,600 16,289 10,769 7,320
TOTAL ASSETS 36,352 40,932 36,162 28,449 23,156
SHAREHOLDERS' EQUITY 20,279 22,362 20,272 14,970 11,444
NET INCOME (LOSS) PER
SHARE - DILUTED ($.66) $.73 $1.68 $1.08 ($.61)
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 3,041 3,116 3,161 3,140 3,032
Letter to Shareholders
Dear Fellow Shareholders:
As I reported last year, we expected 2001 to be a challenging year
due to low consumer confidence, tightening of credit and high fuel costs. So,
we started the year with a conservative approach from the manufacturing side
and a more aggressive push in the retail market - trying to stimulate sales at
our dealership in Arizona, hoping to offset the loss of our largest dealer.
Unfortunately, we did not have the correct personnel or the luxury of great
market conditions. While we were still making a small profit here at Rexhall,
our dealership - Price One - was losing.
As we looked for an exit strategy, we had a major fire here at our
plant in July causing over $2 million in damage. This fire could have been
catastrophic to Rexhall had it not been for the courage of Rexhall
employees -- first, in fighting the fire to contain it until the Fire
Department showed up and, second, by the dedication and loyalty of so many
Rexhall employees who worked into the night and through the weekend to clean
up and repair our plant to a condition where we only lost two full days of
production.
We were almost back to normal when the terrorists struck the World
Trade Center and the Pentagon. This was a disaster of epic proportions. Like
most Americans, after this tragedy, we tried to help. Rexhall and its
employees donated over $20,000 to the American Red Cross for the victims of
New York City and the Pentagon. After September 11, 2001, with Class A
shipments the lowest in years and our dealership losing sales and money, we
were forced to have large layoffs and cut back production.
At this point, our focus changed to better poise Rexhall for 2002 and
beyond. First, we sold our retail inventory from Price One to one of the
nation's largest dealers and established them as Rexhall's dealer in Arizona
and California. Second, we looked to lower our own inventories and build cash.
By year's end, we had accomplished generating over $5 million in cash, lowered
our overall inventory, established new dealer relations and had our largest
trade show ever in Louisville, Kentucky. Our order backlog was a record
$15 million.
We recognize that starting the year 2002 with such strong
fundamentals does not overshadow the losses we suffered in 2001. We, as
management of Rexhall, know that more is expected of us. With that said,
based on the demand for our product in the first 90 days, we are optimistic
that 2002 should be a good year for the RV industry and for Rexhall Industries.
On behalf of the employees and the Board of Directors, I would like
to thank all of the shareholders for their commitment to Rexhall in the good
times and the bad times.
Sincerely,
/s/William J. Rex
President & Chief Executive Officer
Our 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 five lines of Class A motorhomes. The
product lines are RoseAir, RexAir, Aerbus, Vision and American Clipper.
The Company's Class A line offers many models and floor plans with
multiple decors. These various models come with the following chassis and
engine types (see below Raw Materials and Chassis):
- Ford F-53 chassis with a V-10 310 H.P. electronically fuel
injected engine
- Workhorse chassis with the 340 H.P. General Motors Vortec engine
- Spartan Mountain Master chassis with a 330, 350 or 370 H.P. diesel
engine
- Spartan Summit chassis with a 260 H.P. diesel engine
Models range in size from an overall length of approximately 27 feet
to approximately 39 feet with wheelbase ranging from 178 inches to 252 inches.
All models have an overall maximum width of eight and one half feet (102"
widebody) with a height (with air conditioner) of just under twelve feet.
In addition to size of chassis, RoseAir, RexAir, Aerbus, Vision and
American Clipper models are differentiated by exterior graphics, floor plans
and sleeping accommodations. Depending on the model, each motorhome is
equipped to sleep four to six adults comfortably. Standard features and
equipment on all Rexhall models include a 70 or 100 gallon fuel tank (depending
on chassis and model), halogen headlights, dash air conditioning, power
steering, automatic transmission, radial tires, stabilizing air bags, 34,000
or 35,000 BTU furnace, water heater, batteries mounted on a slide-out tray for
easy access and service and a powered entry step. Standard interior features
include a double door flush mounted refrigerator/freezer, three burner range
with automatic pilot light, large two bowl kitchen sink, toilet, fiberglass
shower surround, bathroom sink, coordinating designer accents, day/night
shades. Additional standard equipment includes a television, television
antenna, AM/FM stereo radio with cassette player, auxiliary power generators,
microwave oven, roof air conditioners, and videocassette recorder. Optional
equipment items that may be ordered include a back up camera, washer and
dryer,hydraulic leveling jacks, electric and heated mirrors, 50 AMP service,
ice maker, entertainment center, satellite dish, patio awning, ducted roof
air conditioning, dual pane windows and a simulated fireplace. Some models
may vary in standard equipment.
Suggested retail prices of RoseAir, RexAir, or Aerbus models with
standard equipment range from $83,000 to $183,000 and fully equipped with
available options from $92,000 to $198,000. Suggested retail prices for the
Vision and American Clipper models (entry level) with standard equipment
range from approximately $70,000 to $88,000. In 2000, the Company introduced
two new entry level diesel products, the American Clipper ES and the Vision ES
diesel pushers. The initial marketing strategy dictated a Manufacturer's
Suggested Retail Price (MSRP) of $90,000 with no optional equipment available,
but a few options are now available.
Our Company Facilities
In December 1995, the Company completed construction and moved into
a 87,000 square foot manufacturing facility on ten acres in Lancaster,
California which serves as both a manufacturing facility and the Company's
Corporate Headquarters. The facility was designed by management to insure
efficiency and to specifically position the company with the opportunity to
meet increased production demands. In September 1996, expansion construction
began at the Lancaster site. The new addition, completed in the fourth
quarter of 1997, provided an additional 19,320 square feet of production
space. With other additions completed in 2000, the total square footage is
now near 120,000 square feet. The Lancaster manufacturing plant is debt free
with no mortgages on the facility.
Until December 17, 1999, the Company owned a 97,000 square foot
production facility on 12 acres in Elkhart, Indiana. The Elkhart facility
was debt free with no mortgages on the property. The production facility was
used to manufacture motorhomes until December 30, 1997 when the company
decided to cease production at the Elkhart facility. As a result of this
decision to restructure its operations, the Company recorded a charge to
operations of $1,042,000 in 1997. The company retained its wholesale
motorhome sales, warranty and service operations at the location throughout
1998. The Company sold the Indiana facility to a third party on December 17,
1999 and recorded a gain of $573,000.
In September 1995, the Company purchased a 4.5-acre site located in
Lancaster, California to serve as the Company's RV Service Center. The site
contains a 40,000 square foot facility and was purchased from the City of
Lancaster's Redevelopment Agency for $980,000. At December 31, 2001, the
Company was indebted to the City of Lancaster Redevelopment Agency for an
amount of $705,000 with interest at 5.93% per annum due through October 2015.
From December 1997 until June 2001, the Company leased a portion of the
facility to different third parties, which were major RV retail dealers.
In September 1996, the Company purchased a 4,500 square foot
facility located one mile east of Elkhart, Indiana. The facility has
1,500 square feet of office space and a 3,500 square feet warehouse area.
At December 31, 2001, this property is available for sale.
Rexhall Industries, Inc. has entered into a tentative agreement with
the City of Lancaster to acquire 14 acres adjacent to its headquarters in
Lancaster, California. The agreement will require Rexhall to provide jobs in
the Lancaster Enterprise Zone in exchange for the property and tax credits.
If Rexhall does not fulfill all covenants of the agreement by January 31, 2012,
Rexhall might be required to pay $613,453, which is less than the present
market value of the land. The Company might pay for the land in advance of
receiving the credits, and will be reimbursed as the credits are earned. The
purchase agreement is expected to be finalized in fiscal 2002 at which point
the company plans to manufacture its own rear-engine, diesel chassis and a new
motorhome design.
In July 2000, the Company purchased approximately 4 acres in Mesa,
Arizona to serve as a site for Price I, Inc. dba, Price One RV, which is a
wholly owned subsidiary of the Company. The Company paid $809,000 for the
land and a partially constructed commercial building located on the property.
Another $410,000 was spent by the Company to complete the site for the retail
sale and service of motorhomes. In December 2001, the Company ceased its
retail operations, but continues to operate a service facility under the name
Rexhall Service Center - Arizona.
In December 2000, the Company and Mr. William J. Rex, President &
CEO, purchased 1.7 acres in Acton, California for $401,000. The Company and
Mr. Rex each paid 50% of the purchase price and will share equally in the
construction of a building on the property. The Company plans on using its
half of the land and building as an off-site prototype shop, while Mr. Rex
intends to use his half for personal endeavors outside the Company's scope of
business.
The Company believes its facilities are adequate to meet its
foreseeable needs.
Market Information
The Company's Common Stock has traded in the over-the-counter market
since June 22, 1989 and sales and other information are reported in the NASDAQ
National Market System. The Company's NASDAQ symbol is "REXL". The following
table sets forth the range of high and low closing sale prices of a share of
the Company's Common Stock in the over-the-counter market for each quarter
since the first quarter of 1999 according to NASDAQ:
2001 High Low
Fourth Quarter $ 7.20 $6.99
Third Quarter 4.60 4.30
Second Quarter 6.18 5.70
First Quarter 4.75 4.75
2000 High Low
Fourth Quarter $ 6.00 $4.25
Third Quarter 5.44 4.28
Second Quarter 9.13 5.06
First Quarter 10.38 7.75
1999 High Low
Fourth Quarter $11.75 $8.38
Third Quarter 12.62 9.50
Second Quarter 12.26 7.50
First Quarter 9.17 7.62
Holders
At March 15, 2002, the Company had 60 shareholders of record.
The following table sets forth, for each of the three years
indicated, the percentage of revenues represented by certain items on the
Company's Statements of Operations:
Percentage of Net Revenues
Year Ended December 31,
2001 2000 1999
Net Revenues 100.0% 100.0% 100.0%
Cost of Goods Sold 91.0 84.4 83.2
Gross Profit 9.0 15.6 16.8
Selling, General
and Administrative Expenses 12.9 9.2 7.9
Income (Loss) from Operations (3.9) 6.4 8.9
Legal Settlement --- --- .7
Other Income (Expense), net .5 .1 .2
Gain on Sale of Fixed Assets --- --- .7
Income (Loss)
from Continuing Operations
Before Income Taxes (3.4) 6.5 10.5
Income Tax Expense (Benefit) (1.1) 2.5 4.2
Income (Loss)
from Continuing Operations (2.3) 4.0 6.3
Income (Loss)
from Discontinued Operations, net (1.2) (.6) ---
Net Income (Loss) (3.5%) 3.4% 6.3%
Management Discussion and Analysis
Overview
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein. As is
generally the case in the recreational vehicle industry, various factors can
influence sales. These factors include demographics, changes in interest
rates, competition, restrictions on the availability of financing for the
wholesale and retail purchases of recreational vehicles, as well as significant
changes in the availability and price of gasoline.
The Company was founded in 1986 as a manufacturer of recreational
vehicles, and became publicly held in 1989. The Company currently only builds
Class A motorhomes on either gas or diesel chassis supplied by outside
companies. The Company's products are positioned to be value leaders, in that
its products offer many of the design and structural characteristics and
quality components of high-line motorhomes, but at a much more affordable
price.
The last two years have been very challenging for the Class A
motorhome industry. Approximately 49,400 Class A motorhomes were sold in
1999, which was an all-time high. However, when the stock market started to
slide in the spring of 2000, Class A motorhome sales dropped dramatically.
Class A motorhome sales in 2000 dropped 17% to 41,000 and dropped another 19%
in 2001 to 33,400, which is the lowest annual level since 1995.
Even though the operating results have been greatly influenced by
this industry-wide downturn, Management knows there are significant
opportunities for improvement, regardless of a recovery by the industry or
not. Management will be focusing on improving the Company's selling and
marketing approaches, as well as generating operating efficiencies from
better integration of production, engineering and purchasing.
The Company's market share from 1999 to 2001 has been between 2.5%
and 2.2%. Management expects this percentage to increase as it continues to
enhance the features and benefits of its offerings, and continues to develop
better dealer relations, especially east of the Rocky Mountains. The Company's
year-end order backlog of over $15 million is an early indicator of an
increase in demand for its products.
Significant research and development expenditures of $426,000 and
$131,000 in 2001 and 2000, respectively, have been made to develop a new
motorhome concept to be built on a chassis designed by the Company. The
Company plans to build a new plant in 2002 adjacent to its current facility
in Lancaster, CA, to produce both the new motorhome and the related chassis.
Management believes the Company's $14.8 million of working capital
is strong, which includes $8.7 million in cash. Management expects operating
cash flows to be sufficient to finance the Company's 2002 production ramp-up,
operational improvement initiatives, product enhancements, and complete its
research and development projects. The Company is also planning on minimal
borrowings for the construction of the new plant, but business and market
conditions might arise that make borrowing more prudent.
To counter the short-term and long-term effects of the bankruptcy
of the Company's largest dealer in 2000, the Company established its own
retail operations in Mesa, Arizona, Price I, Inc. dba, Price One, RV. Under
the terms of the repurchase agreements with the bankrupt dealer's lenders,
while the Company was only obligated to repurchase $1.2 million of motorhomes,
it elected to repurchase $4.2 million in order to keep this inventory from
being dumped on the market at substantially lower prices. The retail
operations at Price One RV did not begin in earnest until November of 2000.
As of December 31, 2000, the Company had resold $2.7 million of the repurchased
inventory. In December 2001, the Company ceased its retail operations, but
continues to operate a service facility under the name Rexhall Service
Center - Arizona. During December 2001, the remaining Price One inventory was
sold to another dealership in Arizona. The Company has reported the retail
operations as a discontinued operation.
Result of Operations
Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000
Net revenues for the year ended December 31, 2001, were
$56.7 million, compared to $67.0 million for 2000, a decrease of $10.3 million
or 15%. The number of units shipped, net of repurchased units, decreased 184
to 726 in 2001 from 910 in 2000, a decrease of 20%. The average net selling
price increased approximately 6% during the period due to a higher mix of
diesel units, partially offset by discounts offered in the 4th quarter of 2001.
Wholesale unit shipments of the Company's gas motorhomes were down 37%, while
diesel motorhome unit shipments were up 42% when compared to the same period
in 2000.
Poor RV industry fundamentals of weakened consumer confidence and
tightening of credit, continue to be the drivers of the overall downturn in
the industry. The events of September 11, 2001 only compounded this difficult
market and added to the decline. This led to an increase in dealer incentives
and discounts to stimulate sales and reduce finished goods inventory.
Management cannot determine when these conditions will improve, however,
based on the Company's year-end order backlog, Management believes market
demand is strengthening.
Gross profit for the year ended December 31, 2001 decreased to
$5.1 million from $10.5 million for 2000, a decrease of $5.4 million or 51%.
The gross margin for 2001 was 9.0% as compared to 15.6% for 2000. The primary
drivers of the decrease in gross profit were lower sales, higher discounts and
incentives, and higher overhead costs absorbed by each unit. The decrease in
sales created a smaller absorption base for manufacturing overhead. The
nature of these costs is less variable than direct materials and labor, so
overhead absorption suffers in periods of declining sales. Additionally, a
$392,000 write-down of finished goods inventory and a $354,000 write-down of
chassis inventory were recorded in the third and fourth quarters of 2001,
respectively, to properly reflect lower-of-cost or market inventory valuations.
Selling, general and administrative expenses (SG&A) for the year
ended December 31, 2001 were $7.3 million, compared to $6.1 million for 2000
and increased as a percentage of sales from 9.2% to 12.9% due to the decline
in sales base and an increase in SG&A expenses. The increase in expenses is
primarily related to an increase in research and development, bad debt, and
legal expenses partially offset by a reduction in officer's bonus and
advertising.
Other income primarily consisted of rental income on the sub-leased
portion of the Company's facilities. As of December 31, 2001, the Company was
no longer sub-leasing any of its facilities.
The Company's continuing operations' effective income tax rate was
32% for the year ended December 31, 2001 as compared with 38% for 2000. The
decrease is a result of certain non-deductible expenses being incurred in 2001.
Basic and diluted net income (loss) per share was ($0.66) for the year ended
December 31, 2001, as compared to basic and diluted net income per share of
$0.73 in 2000.
In December 2001, the Company ceased its retail operations, Price
One in Mesa, Arizona. The retail inventory was discounted significantly and
sold to another dealership in Arizona. The net results of the Company's
retail operations are presented in the accompanying financial statements as
"Discontinued Operations".
Comparison of the Year Ended December 31, 2000 to Year Ended December 31, 1999
Net revenues for the year ended December 31, 2000, were $67.0 million,
compared to $83.7 million for 1999, a decrease of $16.7 million or 20%. The
number of units shipped, net of repurchased units, decreased 339 to 910 in
2000 from 1,249 in 1999, a decrease of 27%. The average net selling price
increased approximately 10% during the period due to a higher mix of diesel
units and units with double slides.
The decline in net revenues was primarily attributable to the first
down market in years for Class A motorhomes and the bankruptcy of the Company's
largest dealer. The driver of the 17% down turn in the market was declining
consumer confidence since the stock market started dropping in March of 2000.
This triggered a domino effect that led to a tightening of credit for retail
dealers and consumers. These conditions did not improve significantly in 2001.
Gross profit for the year ended December 31, 2000 decreased to
$10.5 million from $14.1 million for 1999, a decrease of $3.6 million or 26%.
The gross margin for 2000 was 16% as compared to 17% for 1999. The decrease
in sales created a smaller absorption base for manufacturing overhead, which
was the primary driver behind the decrease in gross margin. Manufacturing
overhead includes costs such as depreciation, indirect labor, shop supplies,
utilities, insurance, etc. The nature of these costs is less variable than
materials and labor, so overhead absorption suffers in periods of quickly
declining base. Management believes that prudent steps were taken to reduce
these costs as market conditions dictated, and this small decline in gross
margin compares favorably to the rest of the industry.
Selling, general and administrative expenses (SG&A) for the year
ended December 31, 2000 were $6.1 million, compared to $6.6 million for 1999,
a decrease of $0.5 million or 7.6%. This reduction was primarily attributed
to lower warranty costs and management's quick reaction to market conditions
by holding these costs down. Despite those actions, the 20% reduction in sales
caused SG&A to increase as a percent of net revenues from 7.9% in 1999 to 9.2%
in 2000.
The Company's continuing operations' effective income tax rate was
38% for the year ended December 31, 2000 as compared with 40% for 1999. The
decrease is primarily due to a decrease in State income taxes in 2000. Basic
and diluted net income per share was $0.73 for the year ended December 31,
2000, as compared to basic and diluted net income per share of $1.68 in 1999.
Liquidity and Capital Resources
The Company has relied primarily on internally generated funds,
trade credit and debt to finance its operations and expansions. As of
December 31, 2001, the Company had working capital of $14,757,000, compared
to $16,600,000 at December 31, 2000, a $1,843,000 decrease in working capital,
which is primarily attributable to the net cash flows of the discontinued
retail operations. Significant working capital decreases are reflected in a
$4,848,000 decrease in accounts receivable and a $2,398,000 decrease in
inventories partially offset by an increase of $5,214,000 in cash.
Capital expenditures during 2001 were $178,000. Management
anticipates a higher level of capital expenditures in 2002. Cash flows from
financing activities consisted primarily of repayments of short-term notes of
$237,000 and the repurchase of stock on the open market of $102,000.
Management may continue to repurchase and/or retire stock whenever business
and market conditions are favorable to do so.
As of December 31, 2001 the Company has a $2,500,000 line of credit
with a bank which can be used for working capital purposes secured by
equipment, inventory, and receivables. The interest rate is the prime rate
(4.75% at December 31, 2001). The line of credit expires September 27, 2003.
Under this line of credit, $283,000 has been set aside as an irrevocable
standby letter of credit for the Company to meet the requirements for
self-insurance established by the Department of Industrial Relations which
regulates workers' compensation insurance in California. At December 31, 2001,
no amounts were outstanding under the line of credit agreement. The line of
credit contains various covenants. The Company was in compliance with such
covenants at December 31, 2001.
The Company has a line of credit with a chassis vendor, Ford Motor
Credit Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line
bear interest at an annual rate of prime plus 1% (5.75% at December 31, 2001).
All borrowings are secured by the Ford merchandise. The outstanding balance
included at December 31, 2001 and 2000 was $3,053,000 and $3,555,000
respectively.
The Company anticipates that it will be able to satisfy its ongoing
cash requirements through 2002, including payments related to the expansion
plans at the California facility, primarily with cash flows from operations,
supplemented, if necessary, by borrowings under its revolving credit agreement.
Contractual Obligations and Commercial Commitments
The following table summarizes the Company's obligations and commitments as of
December 31, 2001:
Payments Due by Period (in thousands)
Contractual Cash Less than 1-3 4-5 After
Obligations Total 1 Year Years Years 5 Years
Long-Term Debt $705 34 117 90 464
Total Contractual
Cash Obligations $705 34 117 90 464
Amount of Commitment Expiration per Period (in thousands)
Other Commercial Total Amounts Less than 1-3 4-5 After
Commitments Outstanding 1 Year Years Years 5 Years
Lines of Credit $3,053 3,053 --- --- ---
Total Commercial
Commitments $3,053 3,053 --- --- ---
The Company's contingent liability under the repurchase agreements
is limited to the total unpaid balance (including, in some cases, interest and
other charges) owed to the lending institution by reason of its extension of
credit to the dealer to purchase the Company's motorhomes. The contingent
liability under repurchase agreements varies significantly from time to time,
depending upon shipments and dealer sales to end-users. At December 31, 2001
and 2000, the Company's contingent liability was approximately $23,900,000 and
$26,700,000 respectively. The risk of loss under these agreements is spread
over numerous dealers and financing institutions and is further reduced by the
resale value of any motorhomes that may be repurchased. To date, the Company's
losses under these repurchase agreements have been minimal at the gross margin
level, upon resale of the units.
Independent Auditor's Report
The Board of Directors
Rexhall Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Rexhall Industries, Inc. and subsidiary as of December 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2001. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Rexhall Industries, Inc. and subsidiary as of December 31, 2001 and 2000 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Los Angeles, California
March 1, 2002
REXHALL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 and 2000
ASSETS 2001 2000
CURRENT ASSETS
Cash $ 8,662,000 $ 3,448,000
Accounts Receivables, less Allowance
for Doubtful Accounts $102,000
in 2001, and $100,000 in 2000 2,051,000 6,899,000
Income Tax Receivable 786,000 192,000
Inventories 12,546,000 14,944,000
Deferred Income Taxes (Note 6) 964,000 821,000
Other Current Assets 461,000 330,000
Current Assets of Discontinued
Operations (Note 14) 4,689,000 7,776,000
TOTAL CURRENT ASSETS 30,159,000 34,410,000
Property and Equipment at Cost Net
of Accumulated Depreciation (Note 2) 5,760,000 6,035,000
Property Held for Sale (Note 11) 122,000 127,000
Other Assets 151,000 150,000
Non-Current Assets of Discontinued
Operations (Note 14) 160,000 210,000
TOTAL ASSETS $36,352,000 $40,932,000
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 3,423,000 $ 2,889,000
Line of Credit (Note 3) 3,053,000 3,555,000
Notes Payable and Current Portion
of Long-Term Debt (Note 5) 34,000 33,000
Warranty Allowance 699,000 837,000
Accrued Legal (Note 8) 802,000 445,000
Dealer Incentives 1,139,000 732,000
Other Accrued Liabilities 1,376,000 676,000
Accrued Compensation and Benefits 367,000 319,000
Current Liabilities of Discontinued
Operations (Note 14) 4,509,000 8,324,000
TOTAL CURRENT LIABILITIES 15,402,000 17,810,000
Deferred Income Taxes (Note 6) --- 55,000
Long-Term Debt, less Current Portion (Note 5) 671,000 705,000
TOTAL LIABILITIES 16,073,000 18,570,000
STOCKHOLDERS' EQUITY
Preferred Stock - no par value
Authorized, 1,000,000 shares;
No shares outstanding at December 31,
2001 and December 31, 2000 --- ---
Common Stock - no par value,
Authorized, 10,000,000 shares,
issued and outstanding
3,036,000 at December 31, 2001
and 3,057,000 at 2000 (Note 9) 6,139,000 6,241,000
Loan Receivable from Exercise
of Options (Note 4) (46,000) (57,000)
Retained Earnings 14,186,000 16,178,000
TOTAL STOCKHOLDERS' EQUITY 20,279,000 22,362,000
Commitments and Contingencies (Notes 3 and 7)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,352,000 $ 40,932,000
See accompanying notes to consolidated financial statements
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
2001 2000 1999
Net Revenues (Note 10) $ 56,680,000 $ 66,957,000 $ 83,714,000
Cost of Sales 51,584,000 56,493,000 69,659,000
Gross Profit 5,096,000 10,464,000 14,055,000
Operating Expenses:
Selling, General and
Administrative Expenses 7,333,000 6,129,000 6,572,000
Income (Loss) from Operations (2,237,000) 4,335,000 7,483,000
Interest Income 250,000 274,000 256,000
Interest Expense (181,000) (448,000) (208,000)
Legal Settlement --- --- 604,000
Other Income, net 242,000 200,000 151,000
Gain on Sale of Fixed Assets 26,000 --- 573,000
Income (Loss) from Continuing
Operations Before Income Taxes (1,900,000) 4,361,000 8,859,000
Income Tax Expense (Benefit) (Note 6) (603,000) 1,652,000 3,557,000
Income (Loss) from Continuing
Operations (1,297,000) 2,709,000 5,302,000
Income (Loss) from Discontinued
Operations (net of applicable
income tax benefit of $333,000
and $268,000 in 2001 and 2000,
respectively) (Note 14) (695,000) (436,000) ---
Net Income (Loss) ($1,992,000) $2,273,000 $5,302,000
Basic and Diluted Income (Loss)
from Continuing Operations -
Per Share ($ .43) $ .87 $ 1.68
Basic and Diluted Income (Loss)
from Discontinued Operations -
Per Share ($ .23) ($ .14) ---
Basic and Diluted Income (Loss) -
Per Share ($ .66) $ .73 $ 1.68
Weighted Average Shares Outstanding -
Basic and Diluted 3,041,000 3,116,000 3,161,000
See accompanying notes to consolidated financial statements
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 and 2001
COMMON STOCK LOAN RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
BAL., Dec. 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
BAL., Dec. 31, 1999 3,161,000 $6,788,000 ($421,000) $13,905,000 $20,272,000
Repurchase and
Retirement of Stock (104,000) (547,000) --- --- (547,000)
Repayment of Loan
Receivable Related
to Stock Options --- --- 364,000 --- 364,000
Net Income --- --- --- 2,273,000 2,273,000
BAL., Dec. 31, 2000 3,057,000 $6,241,000 ($ 57,000) $16,178,000 $22,362,000
Repurchase of Stock (21,000) (102,000) --- --- (102,000)
Repayment of Loan
Receivable Related
to Stock Options --- --- 11,000 --- 11,000
Net (Loss) --- --- --- (1,992,000) (1,992,000)
BAL., Dec. 31, 2001 3,036,000 $6,139,000 ($ 46,000) $14,186,000 $20,279,000
See accompanying notes to consolidated financial statements
REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,992,000) $ 2,273,000 $ 5,302,000
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
Operating Activities:
Net loss from
discontinued operations 695,000 436,000 ---
Depreciation and amortization 376,000 362,000 368,000
Gain on sale of property, plant
and equipment (26,000) --- (573,000)
Provision for deferred income taxes (198,000) 169,000 (85,000)
(Increase) decrease in:
Accounts receivable 4,848,000 37,000 (2,341,000)
Inventories 2,398,000 1,560,000 (3,730,000)
Income tax receivable (594,000) (192,000) ---
Increase(decrease) in:
Accounts payable 534,000 (881,000) (1,202,000)
Warranty allowance (138,000) (163,000) 34,000
Accrued legal 357,000 (292,000) (857,000)
Dealer incentives 407,000 (318,000) 220,000
Other assets and liabilities 854,000 295,000 (300,000)
Net cash provided by operating
activities 7,521,000 3,286,000 (3,164,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (178,000) (1,640,000) (643,000)
Proceeds from sale of property
and equipment 108,000 --- 1,024,000
Issuance of notes receivable --- (151,000) ---
Net cash (used in) investing activities (70,000) (1,791,000) 381,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (34,000) (30,000) (28,000)
Repayments on short-term notes (237,000) (127,000) (35,000)
Repayment of line of credit (502,000) (3,590,000) 4,159,000
Proceeds from exercise of stock options 11,000 15,000 ---
Repurchase and retirement of stock --- (547,000) ---
Repurchase of stock (102,000) --- ---
Net cash (used in) financing activities (864,000) (4,279,000) 4,096,000
NET CASH FLOWS FROM DISCONTINUED
OPERATIONS (1,373,000) (98,000) ---
NET (DECREASE) INCREASE IN CASH 5,214,000 (2,882,000) 1,313,000
BEGINNING CASH BALANCE 3,448,000 6,330,000 5,017,000
ENDING CASH BALANCE $8,662,000 $ 3,448,000 $ 6,330,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the year $ 113,000 $ 1,370,000 $ 4,056,000
Interest paid during the year $ 589,000 $ 283,000 $ 183,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Repayment of loan receivable through
cancellation of bonus liability --- $ 349,000 ---
Notes payable for insurance policies $ 328,000 $ 223,000 ---
See accompanying notes to consolidated financial statement
REXHALL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities - Rexhall Industries, Inc. and subsidiary (the "Company")
is engaged in designing, manufacturing and selling Class A motorhomes. Class A
motorhomes are self-contained and self-powered recreational vehicles used
primarily in conjunction with leisure travel and outdoor activities. The
Company's wholly owned subsidiary, Price I, Inc. dba Price One RV, was a
retailer of Class A motorhomes and other recreational vehicles. In December
2001, the Company ceased its retail operations.
Principles of Consolidation - The consolidated financial statements include
the financial statements of Rexhall Industries, Inc. and its wholly owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Concentration of Credit Risk - Sales are usually made to dealers over a wide
geographic area primarily with terms requiring payment within ten days or less
of the dealer's receipt of the unit. Most dealers have floor plan financing
arrangements with banks or other financing institutions under which the lender
advances all, or substantially all, of the purchase price of the motorhome.
The loan is collateralized by a lien on the purchased motorhome. As is
customary in the industry, the Company has entered into repurchase agreements
with these lenders. In general, the repurchase agreements provide that in the
event of default by the dealer on its agreement to the lending institution,
the Company will repurchase the motorhome so financed.
The Company has recorded an allowance for doubtful accounts to cover the
difference between recorded receivables and collections from customers. The
allowance for bad debts is adjusted periodically based upon the Company's
evaluation of historical collection experiences, industry trends and other
relevant factors.
Inventories - Inventories are stated at the lower of cost or market value,
determined using the first-in, first-out basis. Costs include material, labor
and applicable manufacturing overhead. Inventories consist of the following
at December 31, 2001 and 2000:
2001 2000
Raw Materials $ 6,041,000 $ 6,555,000
Work-in-Progress 1,363,000 1,825,000
Finished Goods 5,142,000 6,564,000
Total $12,546,000 $14,944,000
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation and amortization are computed based on the straight-line
method over the estimated useful lives of the assets, which range from 3 to
31.5 years.
Property held for sale is stated at the lower of cost or fair value less
selling expenses and includes certain property no longer used in the Company's
operation.
Research and Development - Research and development costs were $426,000,
$131,000 and nil in 2001, 2000 and 1999, respectively, and are expensed as
incurred.
Revenue Recognition - The Company derives revenue primarily from the sale of
motorhomes to dealers across the United States. Revenue is recognized when
title of the motorhome transfers to the dealer. This generally occurs upon
shipment. Revenues are shown net of repurchases. Revenues are also generated
from the service of motorhomes and from shipment or installation of parts and
accessories.
Warranty Reserve Policy - The Company provides retail purchasers of its
motorhomes with a limited warranty against defects in materials and
workmanship for 12 months or 12,000 miles measured from date of purchase,
or upon the transfer of the vehicle by the original owner, whichever occurs
first. The Company's warranty excludes certain specified components, including
chassis, engines and power train, and appliances, which are warranted
separately by the suppliers. The Company estimates warranty reserves required
by applying historical experience with regard to probabilities of failure and
cost to product sales covered by warranty terms. Warranty expense was
$1,070,000, $900,000 and $1,386,000 for the years ended December 31, 2001,
2000 and 1999, respectively.
Income Taxes - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date. The realizability of the deferred tax assets is assessed
throughout the year and a valuation allowance is established accordingly.
Earnings per Share - Basic earnings per share represents net earnings divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share represents net earnings divided by the weighted
average number of shares outstanding, inclusive of the dilutive impact of
common stock options, provided their impact is not anti-dilutive. See note 12.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions relating to the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the
carrying amount of fair value less costs to sell.
Stock Option Plan - The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including FASB Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation an interpretation of APB Opinion No. 25" issued
March 2000, to account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. SFAS
No. 123, "Accounting for Stock-Based Compensation," established accounting
and disclosure plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
Fair Values of Financial Instruments - The following methods and assumptions
were used to estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
Cash, trade and other receivables, trade accounts payable, notes payable and
accrued expenses: The carrying amounts approximate the fair values of these
instruments due to their short-term nature.
Line of Credit: The fair value of the Company's line of credit approximates
carrying value as it accrues interest at prevailing market rates on a variable
basis.
Long-Term Debt: The fair value of the Company's long-term debt approximates
the current book value based on estimated quotations made on long-term debt
facilities with similar quality and terms.
Reclassifications - Certain reclassifications have been made to the 2000 and
1999 financial statements to conform to the 2001 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2001 and 2000:
Useful Lives
(In years) 2001 2000
Building and Land 5,31.5 5,937,000 5,910,000
Furniture, Fixtures and Equipment 3-7 1,626,000 1,596,000
Autos and Trucks 3-7 286,000 327,000
7,849,000 7,833,000
Less: Accumulated Depreciation 2,089,000 1,798,000
Property and Equipment, net $5,760,000 $6,035,000
3. LINES OF CREDIT
The Company has available a $2,500,000 revolving line of credit with a bank
expiring on September 27, 2003 secured by equipment, inventory, and
receivables. The interest rate is the prime rate (4.75% at December 31,
2001). At December 31, 2001, no amounts were outstanding under this line
and $283,000 has been set aside as an irrevocable standby letter of credit.
The Company has a line of credit with a chassis vendor, Ford Motor Credit
Company ("FMCC"), with a $8,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.75% at December 31, 2001).
All borrowings are secured by the Ford merchandise. The outstanding balance
at December 31, 2001 and 2000 was $3,053,000 and $3,555,000 respectively.
4. LOANS TO RELATED PARTIES
From time to time the Company made loans to certain officers and key employees
related to the exercise of stock options. During 1998, the Company advanced
$385,000 to key employees under the Company's Incentive and Non-Statutory
Stock Option Plan (The Plan) in exchange for the exercise of 123,000 options.
The loans were full recourse loans and were secured by the shares of common
stock issued upon such exercise. The notes bear interest at a rate as
defined by Regulation 1.1274-4 of Internal Revenue Code of 1986, (5.05% at
December 31, 2001). Loans extended for the exercise of incentive stock
options are netted against equity. During 2000, an executive of the company
repaid a portion of the outstanding loans and related accrued interest by
foregoing the bonus liability that was due from the Company. The outstanding
balance at December 31, 2001 was $46,000.
In December 2000, the Company and Mr. William J. Rex, President & CEO,
purchased a partially completed building on 1.7 acres in Acton, California
for $401,000. The Company and Mr. Rex each contributed 50% of the purchase
price and will share equally in the final construction of the building on the
property. The Company plans on using its half of the land and building as an
off-site prototype shop, while Mr. Rex intends to use his half for personal
endeavors outside the Company's scope of business. The Company paid $151,000
on behalf of Mr. Rex in exchange for a $151,000 note receivable. The note is
secured by the executive's interest in the property. The note bears interest
at a rate as defined by Regulation 1.1274-4 of Internal Revenue Code of 1986,
(5.05% at December 31, 2001).
5. NOTES PAYABLE AND LONG-TERM DEBT
2001 2000
Promissory note payable to the City of
Lancaster Redevelopment Agency, 240
monthly payments of $6,285 including
principal and interest at 5.93% per
annum, note matures on October 2015.
The note is collateralized by land and
building with a net book value of
approximately $890,000 at December 31, 2001 $705,000 $738,000
Less: Current Portion 34,000 33,000
Long-Term Portion $671,000 $705,000
Future annual minimum principal payments due on long-term debt (including
current portion) as of December 31, 2001 are as follows:
Year Ending December 31,
2002 $ 34,000
2003 37,000
2004 39,000
2005 41,000
2006 44,000
Thereafter 510,000
$705,000
6. INCOME TAXES
The components of income tax expense (benefit) are as follows:
Year Ended December 31,
2001 2000 1999
Income tax expense (benefit)
excluding discontinued operations ($603,000) $1,652,000 $3,557,000
Income tax (benefit) of discontinued
operations (333,000) (268,000) ---
Total income tax expense (benefit) ($936,000) $1,384,000 $3,557,000
Current:
Federal ($788,000) $ 915,000 $2,884,000
State 50,000 300,000 758,000
(738,000) 1,215,000 3,642,000
Deferred:
Federal (105,000) 159,000 (89,000)
State (93,000) 10,000 4,000
(198,000) 169,000 (85,000)
($936,000) $1,384,000 $3,557,000
The components of deferred tax assets (liabilities) at December 31, 2001 and
2000 follows:
2001 2000
Current:
Allowance for bad debts $ 60,000 $ 40,000
Inventory reserves and unicap 125,000 145,000
Warranty accrual 281,000 332,000
Net operating losses 100,000 ---
Reserve for self insurance 176,000 112,000
Legal reserves 146,000 ---
Other accrued liabilities 151,000 97,000
State tax --- 95,000
$1,039,000 $ 821,000
Non Current:
Depreciation --- (55,000)
Deferred tax assets $1,039,000 $ 766,000
Less:
Valuation allowance (75,000) ---
Net deferred tax asset $ 964,000 $ 766,000
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes due to
the following:
Year Ended December 31,
2001 2000 1999
Net income (loss) before income taxes ($1,900,000) $4,361,000 $8,859,000
Statutory federal tax rate 34% 34% 34%
Expected tax expense (benefit) (646,000) 1,483,000 3,012,000
State taxes net of federal effect (46,000) 205,000 500,000
Permanent differences 5,000 5,000 36,000
Other adjustments 84,000 (41,000) 9,000
Provision for income taxes of continuing
operations (603,000) 1,652,000 3,557,000
Provision for income taxes of discontinued
operations (333,000) (268,000) ---
Provision for income taxes ($ 936,000) 1,384,000 $3,557,000
7. COMMITMENTS AND CONTINGENCIES
Repurchase Agreements - Motorhomes purchased under financing agreements, with
third party lenders, by dealers are subject to repurchase by the Company under
the terms of the financing, at dealer cost and might include unpaid interest
and other costs in the event of default by the dealer. To date, repurchases
have not resulted in significant losses at the gross margin level. During
2001, the Company repurchased approximately $3,319,000 (wholesale value) of
motorhomes under these agreements. As of December 31, 2001, $862,000 remained
in Finished Goods Inventory.
During 2000, the Company repurchased approximately $4,190,000 (wholesale value)
as a result of its obligations associated with the bankruptcy of its largest
dealer. As of December 31, 2001, the Company had resold all of the
repurchased inventory. Repurchases during 1999 were $1,973,000 (wholesale
value).
At December 31, 2001 and 2000 approximately $23,900,000 and $26,700,000,
respectively, of dealer inventory was covered by repurchase agreements.
Dealers do not have the contractual right to return motorhomes under any
Rexhall Dealer Agreement. The repurchase agreements require the dealers to
default or file for bankruptcy. There are also a number of state statutes
which require the repurchasing of motorhomes whenever a dealership is
terminated.
Litigation - The Company is a defendant in various legal proceedings resulting
from the normal course of business. In the opinion of Company management, the
resolution of such matters should not have a material effect on its financial
statements or results of operations and have been adequately reserved for.
8. LEGAL SETTLEMENT
The class action lawsuit Masterjohn et al vs. Rexhall, et al, Case No. 752188
filed in the Superior Court of Orange County, California was settled on
October 2, 1998. Under the agreement Rexhall paid $825,000 in cash, and
issued one coupon per vehicle owned by members of the class of $1,250 towards
purchase of a new Rexhall vehicle or $200 toward service, parts and labor.
New vehicle coupons expired December 31, 2000 while service, parts and labor
expired December 31, 1999. Coupons were redeemable at Rexhall's Lancaster,
California Service Center, as well as other designated dealerships
geographically dispersed. The total number of vehicles owned by class members
was estimated at approximately 5,000. The Company recorded a charge of
$1,590,000 in 1997 relating to this settlement. During the fourth quarter of
1999, the Company released $604,000 of the settlement reserve due to less
than expected coupon redemption rates. At December 31, 2000, the Company has
no remaining liability under the settlement agreement.
9. STOCK INCENTIVE PLAN
The Company had granted stock options under its Incentive and Nonstatutory
Stock Option Plan (the "Plan"), which provided for the granting of (I)
incentive stock options to key employees, pursuant to Section 422A of the
Internal Revenue Code of 1986, and (II) nonstatutory stock options to key
employees, directors and consultants to the Company designated by the Board
as eligible under the Plan. Under the Plan, options for up to 225,000 shares
could be granted. Options granted and outstanding under the Plan expired in
five years and became exercisable and vested in annual increments from two to
three years. All stock options under the Plan were granted at the fair market
value of the Company's common stock at the grant date. The Plan and any
options expired May 10, 1999. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for the Plan.
Accordingly, no compensation cost for the Plan was recognized in 1999.
10. SIGNIFICANT CUSTOMERS
There were no customers that comprised over 10.0% of the Company's revenues
in 2001. Sohn Corporation operated three Southern California locations and
accounted for 13.8% of the Company's revenue in 2000. The Company had one
major customer, RV World Productions aka RV Supercenter (five Arizona
locations), who accounted for 16% of the Company's net revenues during 1999.
11. PROPERTY HELD FOR SALE
Property held for sale consisted of 12 acres of land in Elkhart, Indiana. A
97,000 square foot building resides on the property which used to house the
Company's East Coast production facility. In fiscal 1997, the Company's Board
of Directors adopted a formal plan of restructuring whereby the Company
implemented a plan to cease production operations at this location. During
1998, the Company continued to operate a wholesale motorhome sales, warranty,
and service operations at this location. During the year-ended December 31,
1998, the Company's Board of Directors approved a plan to sell the Elkhart
property and facility in its entirety. On December 17, 1999, the Company
sold the Elkhart, Indiana manufacturing facility land and building for total
consideration of $966,000, net of executory costs. The accompanying results
of operations for the year ended December 31, 1999 reflect the sale of such
property and the resulting gain on sale of $573,000, net of executory costs.
At December 31, 2001, the Company's customer service center in Elkhart,
Indiana has remained classified as held for sale. The facility has
1,500 square feet of office space and a 3,500 square foot warehouse area
with a net book value of $122,000 as of December 31, 2001.
12. EARNINGS PER SHARE
The following is a reconciliation of the basic and diluted earnings per share
computation for the year 2001, 2000 and 1999 (in thousands, except per share
data):
Year ended December 31,
2001 2000 1999
Net Income (Loss) Used for Basic and
Diluted Earnings Per Share ($1,992) $2,273 $5,302
Shares of Common Stock and
Common Stock Equivalents:
Weighted Average Shares Used
in Basic and Diluted Computation 3,041 3,116 3,161
Earnings Per Share:
Basic and Diluted ($ .66) $ .73 $ 1.68
During the 12 months ended December 31, 2001, the Company repurchased 21,000
common shares on the open market at an average cost of $4.88 per share.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations for fiscal 2001 and 2000 are as follows:
First Second Third Fourth
in thousands, except per share data Quarter Quarter Quarter Quarter
FISCAL 2001:
Net Revenues $15,310 $16,442 $12,673 $12,255
Gross Profit 1,734 1,848 1,255 259
Income (Loss) from Continuing
Operations before Income
Taxes 437 355 (828) (1,864)
Income (Loss) from Continuing
Operations 262 213 (497) (1,275)
(Loss) from Discontinued
Operations, net (143) ( 81) (158) (313)
Net Income (Loss) 119 132 (655) (1,588)
Basic and Diluted Net Income
(Loss) Per Share (1) .04 .04 (.22) (.52)
FISCAL 2000:
Net Revenues $20,559 $14,936 $12,488 $18,974
Gross Profit 3,198 1,878 2,544 2,844
Income from Continuing
Operations before Income
Taxes 1,655 655 883 1,168
Income from Continuing
Operations 964 360 498 887
(Loss) from Discontinued
Operations, net --- --- --- (436)
Net Income 964 360 498 451
Basic and Diluted Net Income
Per Share (1) .31 .11 .16 .15
(1) Net income per share amounts for each quarter are required to be
computed independently and may not equal the amount computed for the
total year.
14. DISCONTINUED OPERATIONS
In December 2001, the Company decided to discontinue its retail operations,
Price One RV in Mesa, Arizona. At the time of discontinuing the retail
operations, the remaining motorhome inventory was sold, at a discount, to
another dealership in Arizona. The fixed assets and parts inventory will be
disposed of in 2002. The Company's financial statements have been restated
to reflect the retail segment as a discontinued operation for all periods
presented.
Following is summary financial information for the Company's discontinued
retail operations:
Years Ended December 31,
2001 2000 1999
Net Sales $15,622,000 $1,745,000 ---
Income (Loss) from Discontinued
Operations before Income
Taxes (1,028,000) (704,000) ---
Income Tax Benefit (333,000) (268,000) ---
Net Loss from Discontinued
Operations ($ 695,000) ($ 436,000) ---
As of December 31,
2001 2000
Cash $ 90,000 ($ 21,000)
Receivables, net 4,560,000 167,000
Inventories 34,000 7,532,000
Other Current Assets 5,000 98,000
Current Assets of Discontinued
Operations $4,689,000 $7,776,000
Property and Equipment at Cost
Net of Accumulated
Depreciation $ 158,000 $ 118,000
Other Assets 2,000 92,000
Non-Current Assets of
Discontinued Operations $ 160,000 $ 210,000
Accounts Payable $ 54,000 $1,651,000
Notes Payable 4,455,000 6,605,000
Other Current Liabilities --- 68,000
Current Liabilities of
Discontinued Operations $4,509,000 $8,324,000
Schedule 2
Valuation and Qualifying Accounts
Allowance for Doubtful Receivables
BALANCE, December 31, 1998 $150,000
Additions: Charges to Operations (100,000)
Deductions: A/R Write Offs ---
BALANCE, December 31, 1999 50,000
Additions: Charges to Operations 50,000
Deductions: A/R Write Offs ---
BALANCE, December 31, 2000 100,000
Additions: Charges to Operations 283,000
Deductions: A/R Write Offs (281,000)
BALANCE, December 31, 2001 $102,000