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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 End September 30, 2002 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: 6,059,700 as of November 12, 2002.
REXHALL INDUSTRIES, INC.
-1-
INDEX
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PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
-------
Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at September 30, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Operations for the
Three and Nine months ended September 30, 2002 and September 30, 2001 4-5
Condensed Consolidated Statements of Cash Flows for the
Nine months ended September 30, 2002 and September 30, 2001 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2.
-------
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Item 3.
-------
Quantitative and Qualitative Disclosure about Market Risks 12
Item 4.
-------
Controls and Procedures 12
PART II - OTHER INFORMATION
Repurchase Agreements 12
Legal Proceedings 12
Signatures 13
PART III - EXHIBITS
Officer Certifications 14-15
-2-
PART I - FINANCIAL INFORMATION
---------------------
Item 1. - Condensed Consolidated Financial Statements
- -------
REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 2002 December 31, 2001
------------------ ------------------
ASSETS
- ------
CURRENT ASSETS
Cash $ 4,887,000 $ 8,662,000
Accounts Receivables, net 2,023,000 2,051,000
Income Tax Receivable 1,310,000 786,000
Inventories 16,833,000 12,546,000
Deferred Income Taxes 964,000 964,000
Other Current Assets 162,000 461,000
Current Assets of Discontinued Operations 587,000 4,689,000
-------------- -------------
TOTAL CURRENT ASSETS 26,766,000 30,159,000
Property and Equipment at Cost Net
of Accumulated Depreciation 5,615,000 5,760,000
Property Held for Sale --- 122,000
Other Assets 153,000 151,000
Non-Current Assets of Discontinued Operations 37,000 160,000
-------------- --------------
TOTAL ASSETS $32,571,000 $36,352,000
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 2,182,000 $ 3,423,000
Chassis Vendor Line of Credit 4,910,000 3,053,000
Notes Payable and Current Portion
of Long-Term Debt 36,000 34,000
Accrued Warranty 916,000 699,000
Accrued Legal 791,000 802,000
Accrued Dealer Incentives 1,087,000 1,139,000
Other Accrued Liabilities 1,927,000 1,376,000
Accrued Compensation and Benefits 418,000 367,000
Current Liabilities of Discontinued Operations 424,000 4,509,000
-------------- -------------
TOTAL CURRENT LIABILITIES 12,691,000 15,402,000
Long-Term Debt, less Current Portion 643,000 671,000
-------------- --------------
TOTAL LIABILITIES 13,334,000 16,073,000
------------ ------------
STOCKHOLDERS' 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 6,060,000 at September 30, 2002
and December 31, 2001 5,986,000 6,139,000
Loan Receivable from Exercise of Options (39,000) (46,000)
Retained Earnings 13,290,000 14,186,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 19,237,000 20,279,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,571,000 $36,352,000
=========== ===========
See accompanying notes to condensed consolidated financial statements
-3-
REXHALL INDUSTRIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net Revenues $12,872,000 $12,673,000
Cost of Sales 11,830,000 11,417,000
------------- -------------
Gross Profit 1,042,000 1,256,000
Operating Expenses:
Selling, General, Administrative Expenses
and Other Expenses 2,559,000 2,084,000
------------- -------------
Loss from Continuing Operations
before Income Taxes (1,517,000) (828,000)
Income Tax Benefit (610,000) (331,000)
------------- -------------
Loss from Continuing Operations (907,000) (497,000)
Loss from Discontinued Operations
(net of applicable income tax benefit
of $103,000 in 2001) --- (158,000)
------------- -------------
Net Loss ($ 907,000) ($ 655,000)
============= =============
Basic and Diluted Income
from Continuing Operations - Per Share ($0.15) ($0.08)
Basic and Diluted Loss
from Discontinued Operations - Per Share --- ($0.03)
-------------- -------------
Basic and Diluted Income - Per Share ($0.15) ($0.11)
============== =============
Weighted Average Shares Outstanding
Basic and Diluted 6,060,000 6,095,000
============== =============
See accompanying notes to condensed consolidated financial statements
-4-
REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net Revenues $49,243,000 $44,425,000
Cost of Sales 44,524,000 39,587,000
------------ -----------
Gross Profit 4,719,000 4,838,000
Operating Expenses:
Selling, General, Administrative Expenses
and Other Expenses 6,213,000 4,874,000
------------ -----------
Loss from Continuing Operations
before Income Taxes (1,494,000) (36,000)
Income Tax Benefit (598,000) (14,000)
------------- -------------
Loss from Continuing Operations (896,000) (22,000)
Loss from Discontinued Operations
(net of applicable income tax benefit
of $247,000 in 2001) --- (382,000)
------------- ------------
Net Loss ($ 896,000) ($ 404,000)
============ ============
Basic and Diluted Income
from Continuing Operations - Per Share ($0.15) ($0.00)
Basic and Diluted Loss
from Discontinued Operations - Per Share --- ($0.07)
------------ -----------
Basic and Diluted Income - Per Share ($0.15) ($0.07)
============ ===========
Weighted Average Shares Outstanding
Basic and Diluted 6,060,000 6,095,000
============ ===========
See accompanying notes to condensed consolidated financial statements
-5-
REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (896,000) $ (404,000)
Adjustments to reconcile net income
to net cash provided by (used in)
Operating Activities:
Net loss from discontinued operations --- 392,000
Depreciation and amortization 285,000 284,000
Gain on sale of property, plant and equipment (34,000) (3,000)
Provision for deferred income taxes --- ---
(Increase) decrease in:
Accounts receivable 28,000 3,755,000
Inventories (4,287,000) 82,000
Income tax receivable (524,000) (108,000)
Increase (decrease) in:
Accounts payable (1,241,000) (108,000)
Accrued warranty 217,000 (183,000)
Accrued legal (11,000) 210,000
Accrued dealer incentives (52,000) 121,000
Other assets and liabilities 1,153,000 343,000
------------- --------------
Net cash provided by (used in) operating activities (5,362,000) 4,381,000
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (143,000) (165,000)
Proceeds from sale of property and equipment 159,000 85,000
--------------- --------------
Net cash provided by (used in) investing activities 16,000 (80,000)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on long-term debt (26,000) (26,000)
Repayments on short-term notes (254,000) (434,000)
Repayments on chassis vendor line of credit 1,857,000 (2,527,000)
Proceeds from loan receivable on exercise of stock options 7,000 8,000
Repurchase and retirement of stock (153,000) (102,000)
-------------- --------------
Net cash provided by used in financing activities 1,431,000 (3,081,000)
------------- -------------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS 140,000 (408,000)
NET INCREASE (DECREASE) IN CASH (3,775,000) 812,000
BEGINNING CASH BALANCE 8,662,000 3,448,000
------------- -------------
ENDING CASH BALANCE $ 4,887,000 $ 4,260,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 56,000 $ 83,000
See accompanying notes to condensed consolidated financial statements
-6-
REXHALL INDUSTRIES, INC.
Notes to the Condensed Consolidated Financial Statements
September 30, 2002
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and disclosures 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 accounting principles
generally accepted in the United States of America 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,
2001.
The results of operations for any interim period are not necessarily indicative
of the results to be expected for the full year.
2. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of 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 those estimates.
Significant estimates include the valuation of inventory at the lower of cost or
market, the allowance for doubtful accounts, deferred income tax asset valuation
allowances, and the valuation of the company's long-lived assets. Considerable
management judgement is necessary to estimate these and other amounts.
Accordingly, actual results could vary significantly from management estimates.
3. 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 on going evaluation by
management.
4. Stock Split
In July of 2002 the Company carried out a 2-for-1 stock split. All historical
share and per share data are presented on a post-split basis.
5. Earnings Per Share
Basic earnings per share represents net earnings divided by the weighted-average
number of common shares outstanding for the period. Basic and diluted earnings
per share are the same for all periods presented, as the company has no
potentially dilutive securities outstanding.
6. Inventory September 30, 2002 December 31, 2001
------------------ -----------------
Chassis $ 7,472,000 $ 3,219,000
Raw Materials 2,619,000 2,822,000
Work-in-Progress 1,475,000 1,363,000
Finished Goods 5,267,000 5,142,000
----------- -----------
Total $16,833,000 $12,546,000
=========== ===========
7. 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 are expected to be disposed of
in 2002. The Company's financial statements for the quarter ended September 30,
2001 have been restated to reflect the retail segment as a discontinued
operation.
-7-
Following is summary financial information for the Company's discontinued retail
operations:
Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net Sales $ --- $5,862,000
============= ==========
Loss from Discontinued Operations
before Income Taxes --- (629,000)
Income Tax Benefit --- (247,000)
------------- ------------
Net Loss from Discontinued Operations --- ($ 382,000)
============== ===========
September 30, 2002 December 31, 2001
------------------ -----------------
Cash $ 126,000 $ 90,000
Receivables, net 461,000 4,560,000
Inventories --- 34,000
Other Current Assets --- 5,000
----------- ----------
Current Assets of Discontinued Operations $ 587,000 $4,689,000
============= ==========
Property and Equipment at Cost
Net of Accumulated Depreciation $ 37,000 $ 158,000
Other Assets --- 2,000
------------- ----------
Non-Current Assets of Discontinued Operations $ 37,000 $ 160,000
============= ==========
Accounts Payable $ 3,000 $ 54,000
Notes Payable 421,000 4,455,000
------------- ----------
Current Liabilities of Discontinued Operations $ 424,000 $4,509,000
============= ==========
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".
Critical Accounting Policies
- ----------------------------
In the ordinary course of business, management has made a number of estimates
and assumptions relating to the reporting of results of operations and financial
condition in the preparation of its financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. Management believes that the following discussion
addresses our most critical accounting policies, which are those that are most
important to the portrayal of our financial condition and results and require
the most difficult, subjective and complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain.
Valuation of Inventory
The Company values inventories at the lower-of-cost or market using the
first-in, first-out (FIFO) method. Adjustments to the value of inventory are
recorded based upon damage, deterioration, obsolescence and changes in market
value. In determining market value, management has considered its current
replacement cost ensuring it does not exceed net realizable value (i.e.,
estimated selling price in the ordinary course of business less estimated costs
of completion and disposal). Management has evaluated the current level of
inventories considering the order backlog and other factors in assessing
estimated selling prices and made adjustments to cost of goods sold for
estimated decrease in the net realizable value of inventory. These adjustments
are estimates, which could vary significantly, either favorably or unfavorably,
from actual results.
-8-
Revenue Recognition
The Company derives revenue primarily from the sale of motorhomes to dealers
across the United States. Revenue is recognized when title of the motorhome
transfers to the dealer. This generally occurs upon shipment. Most dealers have
floor plan financing arrangements with banks or other financing institutions
under which the lender advances all, or substantially all, of the purchase price
of the motorhome. The loan is collateralized by a lien on the purchased
motorhome. As is customary in the industry, the Company has entered into
repurchase agreements with these lenders. In general, the repurchase agreements
provide that in the event of default by the dealer on its agreement to the
lending institution, the Company will repurchase the financed motorhome.
Revenues are shown net of repurchases. The Company specifically reserves the
gross margin for known repurchase obligations quarterly and at fiscal year end.
Revenues are also generated from the service of motorhomes and from shipment or
installation of parts and accessories.
Legal Accrual
The Company's current estimated range of liability related to some of the
pending litigation is accrued based on claims for which it is probable that a
liability has been incurred and the amount of the loss can be reasonably
estimated. Because of the uncertainties related to both the amount and range of
loss on the remaining pending litigation, management is unable to make a
reasonable estimate of the liability that could result from an unfavorable
outcome. As additional information becomes available, management will assess the
potential liability related to the pending litigation and revise the estimates.
Such revisions in the estimates of the potential liability could materially
impact the results of operation and financial position.
Results of Operations
- ---------------------
Comparison of the three months ended September 30, 2002 to the three months
ended September 30, 2001
Management's focus was taken from running the business in the third quarter
while it supported the review of the Company's accounting records and worked
diligently to keep the Company's stock from being delisted from the NASDAQ.
Unfortunately, this resulted in production challenges not getting resolved
timely, which caused approximately two weeks' worth of production to not get
completed and shipped by quarter end. Also, the audit and legal fees resulting
from the review of the accounting records and the potential delisting have
amounted to approximately $750,000.
The Company plans to launch four new floor plans at the RVIA Industry Tradeshow
in the fourth quarter, including two triple-slide gas motor homes, a 34'
entry-level diesel, and a 40' quadruple-slide diesel. The Company also plans to
refocus on the gas-powered side of the market, as well as ensure its diesel
offerings remain value leaders.
Revenues - 2002 compared with 2001
- ----------------------------------
Net revenues from continuing operations for the quarter ended September 30, 2002
were $12,872,000 as compared to $12,673,000 for the same quarter in 2001. This
represents a 2% increase from the prior year. Net units sold for the quarter
ended September 30, 2002 were 155 compared to 158 for the quarter ended
September 30, 2001, a 2% decrease. Wholesale shipments of the Company's gas
motorhomes were up 8%, while diesel shipments were down 22% when compared to
last year's third quarter.
Gross Profit - 2002 compared with 2001
- --------------------------------------
Gross profit from continuing operations decreased to $1,042,000 from $1,256,000
for the same quarter in 2001, which is a decrease of $214,000 or 17%. Gross
margin was 8.1% as compared to 9.9% last year. The decrease in gross margin was
attributable to production difficulties resulting in lower unit sales and higher
direct labor per unit. Management expects the margins to hold or improve, but
there are no assurances due to the uncertain direction of the RV industry
fundamentals and competition within the industry.
-9-
Selling, General, Administrative and Other Expenses - 2002 compared with 2001
- -----------------------------------------------------------------------------
Selling, General, Administrative and Other Expenses from continuing operations
increased by approximately $475,000 from the third quarter of 2001 to the third
quarter of 2002. Selling, general, administrative and other expenses increased
to 19.9% as a percentage of sales when compared to 16.4% for the quarter ended
September 30, 2001. The increase is primarily related to approximately $750,000
spent by the Company on audit and legal fees during the review of its accounting
records related to the restatement of its first quarter results, plus an
increase in warranty expense and a decrease in rental and interest income.
Without the fees related to the accounting records review and potential
delisting, Selling, General, Administrative and Other Expenses from continuing
operations would have decreased by approximately $275,000 from the third quarter
of 2001 to the third quarter of 2002, and would have decreased to 14.1% as a
percentage of sales when compared to 16.4% for the quarter ended September 30,
2001.
Income Taxes - 2002 compared to 2001
- ------------------------------------
Income tax benefit from continuing operations was $610,000 for the quarter ended
September 30, 2002 as compared to $331,000 in the same quarter of 2001. 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.
Results of Operations
- ---------------------
Comparison of the nine months ended September 30, 2002 to the nine months ended
September 30, 2001
Revenues - 2002 compared with 2001
- ----------------------------------
Net revenues from continuing operations for the first nine months ended
September 30, 2002 were $49,243,000 as compared to $44,425,000 for the nine
months of 2001. This represents an 11% increase from the prior year. Net units
sold for the nine months ended September 30, 2002 were 598 compared to 563 for
the nine months ended September 30, 2001, a 6% increase. Wholesale shipments of
the Company's gas motorhomes were up 17%, while diesel shipments were down 18%.
The increase in net revenues is primarily attributable to an industry-wide
increase in Class "A" shipments of 17% when compared to last year. Management
cannot predict whether the increase in sales will continue. The Company plans to
launch four new floor plans at the RVIA Industry Tradeshow in the fourth
quarter, including two triple-slide gas motor homes, a 34' entry-level diesel,
and a 40' quadruple-slide diesel. The Company also plans to refocus on the
gas-powered side of the market, as well as ensure its diesel offerings remain
value leaders.
Gross Profit - 2002 compared with 2001
- --------------------------------------
Gross profit from continuing operations decreased to $4,719,000 from $4,838,000
for the same nine months in 2001, which is a decrease of $119,000 or 2%. Gross
margin was 9.6% as compared to 10.9% last year. The decrease in gross margin was
primarily attributable to an increase in direct labor per unit. Management
expects the margins to hold or improve, but there are no assurances due to the
uncertain direction of the RV industry fundamentals and competition within the
industry.
Selling, General, Administrative and Other Expenses - 2002 compared with 2001
- -----------------------------------------------------------------------------
Selling, General, Administrative and Other Expenses from continuing operations
increased by approximately $1,339,000 from the first nine months of 2001 to the
first nine months of 2002. Selling, general, administrative and other expenses
increased to 12.6% as a percentage of sales when compared to 11.0% for the nine
months ended September 30, 2001. The increase is primarily related to
approximately $750,000 spent by the Company on audit and legal fees during the
review of its accounting records related to the restatement of its first quarter
results, plus an increase in warranty expense and a decrease in rental and
interest income. Without the fees related to the accounting records review and
potential delisting, Selling, General, Administrative and Other Expenses from
continuing operations would have increased by approximately $589,000 from the
first nine months of 2001 to the first nine months of 2002, and would have
increased to 11.1% as a percentage of sales when compared to 11.0% for the nine
months ended September 30, 2001.
Income Taxes - 2002 compared to 2001
- ------------------------------------
Income tax benefit from continuing operations was $598,000 for the nine months
ended September 30, 2002 as compared to $14,000 in the first nine months of
2001. 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.
-10-
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 September 30, 2002, the
Company had working capital of $14,075,000, compared to $14,757,000 at December
31, 2001. The $682,000 decrease in working capital is primarily due to a
$3,775,000 decrease in cash and a $1,857,000 increase in the chassis vendor line
of credit partially offset by a $4,287,000 increase in inventory and a $524,000
increase in income tax receivables.
Capital expenditures during the first nine months of 2002 were $143,000.
Management estimates an additional $25,000 to $75,000 of capital expenditures
for the last quarter of 2002 related to refurbishment of the production
facilities and related production equipment. Significant increases are expected
to be incurred when the Company begins construction of the new facility, which
is anticipated in the first half of next year.
As of September 30, 2002 the Company has a $2,500,000 line of credit with a
bank, which can be used for working capital purposes secured by equipment,
inventory and receivables. The interest rate is the prime rate (4.75% at
September 30, 2002). The line expires on September 27, 2003. Under this line of
credit, $437,000 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 worker's compensation
insurance in California. At September 30, 2002, no amounts were outstanding
under the line of credit agreement. The line of credit contains various
covenants. The Company was in compliance with such covenants as of September 30,
2002.
The Company has a line of credit with a chassis vendor, Ford Motor Credit
Company ("FMCC"), with a $5,000,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.75% at September 30, 2002). All
borrowings are secured by the Ford merchandise. The outstanding balance at
September 30, 2002 was $4,910,000.
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.
New Accounting Pronouncements
- -----------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections which requires that the
extinguishment of debt not be considered an extraordinary under APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, unless the debt extinguishment meets the unusual in
nature and infrequency of occurrence criteria in APB 30. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002 and upon adoption,
companies must reclassify prior period items which do not meet the extraordinary
item classification criteria in APB 30. The adoption of SFAS No. 145 is not
expected to have a material impact on the Company's financial condition or
results of operations.
On July 30, 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 146, Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 nullifies EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." It requires that a
liability be recognized for those costs only when the liability is incurred,
that is, when it meets the definition of a liability in the FASB's conceptual
framework. SFAS No. 146 also establishes fair value as the objective for initial
measurement of liabilities related to exit or disposal activities. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier adoption encouraged. The Company does not expect that the
adoption of SFAS 146 will have a material impact on its financial position or
results from operations.
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 cyclical, and sales in the next
few months are typically lower. Consumer confidence levels have fallen
significantly, and that may reduce future sales. Threats of war and increased
fuel prices could adversely affect the entire industry. Most of Rexhall's
competitors are substantially larger, and many of its suppliers and dealers have
greater economic power, so that the volume and prices of both supplies and sales
may be adversely affected by competitive action. Management intends to remain
aware of these factors and react to them, but cannot predict their timing or
significance.
-11-
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. Threats of war and increased fuel prices could adversely
affect sales for the entire industry.
Item 4. - Controls and Procedures
- -------
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic SEC reports. It
should be noted that the design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
PART II - OTHER INFORMATION
-----------------
Repurchase Agreements - Motorhomes purchased by dealers, under financing
- ---------------------
agreements with third party lenders 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. During the nine
months ended September 30, 2002 and 2001, the Company repurchased approximately
$1,585,000 and $2,224,000 respectively, (wholesale value) of motorhomes under
these agreements. At September 30, 2002 and 2001, approximately $24,700,000 and
$22,700,000, 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 that
require the repurchasing of motorhomes whenever a dealership is terminated.
Legal Proceedings -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 should not have a material effect on its financial
statements or results of operations. The Company has restated its first quarter
10-Q to adjust inventory levels, and the second quarter 10-Q was not timely
filed. The previously announced independent review of the Company's accounting
records has been completed with no other errors found in the Company's financial
statements for the first and second quarters of 2002. NASDAQ completed its
hearing and took no action to delist the company's shares.
-12-
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, thereunto duly authorized.
Rexhall Industries, Incorporated
- --------------------------------
(Registrant)
By /S/ William J. Rex By /S/ J. Michael Bourne
- ----------------------------- -------------------------------------------
(Signature and Title)* (Signature and Title)*
William J. Rex, President, J. Michael Bourne, Executive Vice President,
CEO & Chairman COO & CFO
Date: November 13, 2002 Date: November 13, 2002
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: November 13, 2002
By /S/ J. Michael Bourne
- ---------------------------- --------------------------
(Signature and Title)*
J. Michael Bourne
Executive Vice President, COO & CFO
Director
Date: November 13, 2002
By /S/ Robert A. Lopez
- ----------------------------------- --------------------------
(Signature and Title)*
Robert A. Lopez
Director
Date: November 13, 2002
By /S/ Frank A. Visco
- ------------------------------------ --------------------------
(Signature and Title)*
Frank A. Visco
Director
Date: November 13, 2002
By /S/ Dr. Dennis K. Ostrom
- -------------------------------- --------------------------
(Signature and Title)*
Dr. Dennis K. Ostrom
Director
Date: November 13, 2002
-13-
PART III - EXHIBITS
--------
CERTIFICATIONS
- --------------
I, William J. Rex, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Rexhall Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the issuer as of, and for, the periods presented in this quarterly
report;
4. I and the other certifying officer:
-- Are responsible for establishing and maintaining "disclosure
controls and procedures" for the issuer;
-- Have designed such controls and procedures to ensure that
material information is made known to them, particularly during
the period in which the periodic report is being prepared;
-- Have evaluated the effectiveness of the issuer's disclosure
controls and procedures as of a date within 90 days prior to the
filing of the report; and
-- Have presented in the report their conclusions about the
effectiveness of the disclosure controls and procedures based on
the required evaluation as of that date;
5. I and the other certifying officer have disclosed to the issuer's auditors
and to the audit committee of the board of directors:
-- All significant deficiencies in the design or operation of
internal controls, which could adversely affect the issuer's
ability to record, process, summarize, and report financial data
and have identified any material weaknesses in the internal
controls; and
-- Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's
internal controls;
6. I and the other certifying officer have indicated in the report whether or
not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses; and
7. The periodic report containing the financial statements fully complies with
the requirements of Section 13(a) and 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m(a) or 780(d)) and the information contained in the
periodic report fairly presents, in all material respects, the financial
condition and results of operations of the issuer.
Date: November 13, 2002
-----------------------------------------------
William J. Rex
President, Chairman and Chief Executive Officer
-14-
CERTIFICATIONS
- --------------
I, J. Michael Bourne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Rexhall Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the issuer as of, and for, the periods presented in this quarterly
report;
4. I and the other certifying officer:
-- Are responsible for establishing and maintaining "disclosure
controls and procedures" for the issuer;
-- Have designed such controls and procedures to ensure that
material information is made known to them, particularly during
the period in which the periodic report is being prepared;
-- Have evaluated the effectiveness of the issuer's disclosure
controls and procedures as of a date within 90 days prior to the
filing of the report; and
-- Have presented in the report their conclusions about the
effectiveness of the disclosure controls and procedures based on
the required evaluation as of that date;
5. I and the other certifying officer have disclosed to the issuer's auditors
and to the audit committee of the board of directors:
-- All significant deficiencies in the design or operation of
internal controls, which could adversely affect the issuer's
ability to record, process, summarize, and report financial data
and have identified any material weaknesses in the internal
controls; and
-- Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's
internal controls;
6. I and the other certifying officer have indicated in the report whether or
not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses; and
7. The periodic report containing the financial statements fully complies with
the requirements of Section 13(a) and 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m(a) or 780(d)) and the information contained in the
periodic report fairly presents, in all material respects, the financial
condition and results of operations of the issuer.
Date: November 13, 2002
-------------------------------------------------
J. Michael Bourne
Executive Vice President, Chief Operating Officer
and Acting Chief Financial Officer