SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission file Number 2-31520
KIT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
California 95-1525261
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 East Wardlow Road, Long Beach, California 90807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (562) 595-7451
Securities registered pursuant to Section 12(b) of the Act:
Title of class: Common Stock, no par value
Name of each exchange on which registered: American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The approximate aggregate market value of voting stock held by
non-affiliates of Registrant was $3,155,245 as of January 27, 1999.
1,110,934
(Number of shares of Common Stock outstanding as of January 22, 1998)
Certain information called for by Parts I, II and IV is incorporated by
reference to the registrant's Annual Report to shareholders for the fiscal
year ended October 31, 1998 and the information called for by Part III is
incorporated by reference to the registrant's definitive proxy statement to
be filed with the Commission within 120 days after October 31, 1998.
The Index to Exhibits appears on page 16.
35 pages in total.
1
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PART I
Item 1. Business
General
KIT Manufacturing Company ("Registrant") was incorporated
in California in 1947, as the successor to a business founded in
1945. A description of Registrant's business during the last fiscal
year appears on page 3 of Registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 1998, which is incorporated
herein by reference.
Principal Products Produced and Industry Segments
Registrant designs, manufactures and sells manufactured
housing (mobile homes) which are relocatable, factory-built
dwellings of single, double and triple unit design. Constructed on wheel
undercarriages, they are towed by truck to locations where they are
set up and connected to utilities. Registrant also produces
recreational vehicles designed as short-period accommodations for
vacationers and travelers. These products are travel trailers
designed to be towed behind pickup trucks and fifth wheel travel
trailers designed to be towed behind and attached to special
couplers in the beds of pickup trucks.
Set forth below are the percentages of revenues
contributed by each class of similar products for the last three
fiscal years:
Products Class
Fiscal Year Manufactured Recreational
Ended October 31, Housing Vehicles
1996 22% 78%
1997 31% 69%
1998 43% 57%
Certain information regarding industry segments is set
forth on page 10 of Registrant's Annual Report to Shareholders for
the fiscal year ended October 31, 1998, which is incorporated herein
by reference.
Method of Product Distribution
Registrant sells its products to approximately 167 dealers
in 25 states and 21 dealers in Canada. Exclusive dealerships are not the
pattern of the industry, and virtually all dealers also sell competing
products. Registrant generally produces manufactured housing products
only against orders received from dealers. Recreational vehicles are
built for inventory particularly during the winter months in anticipation of
increased demand during the spring months. (See "Seasonal Considerations"
below.)
Transportation charges are an important
2
<PAGE>
Item 1. Continued
factor in the cost of Registrant's products; therefore, distribution
is generally a function of distance to the various markets and
competitive conditions within these markets. (See Item 2,
"Properties," for the locations of Registrant's principal plants.)
Registrant is not dependent upon a single customer or a
few customers and no dealer or group of dealers accounts for a
substantial amount of Registrant's total sales.
Competitive Conditions
The recreational vehicle and manufactured housing
industries are highly competitive. Registrant believes that the
principal methods of competition in these industries are based upon
quality, price, styling, warranty and service of products being
offered. Registrant also believes that it competes favorably with
respect to these factors in the manufactured housing group and has
recently taken action with respect to the recreational vehicle
product line to ensure it remains competitive in the marketplace.
There are a large number of firms manufacturing and marketing
products similar to those of Registrant within the geographical area
in which Registrant's products are marketed. Several of the
manufacturers within these industries are larger than Registrant in
terms of total revenue and resources.
Backlog
Registrant does not consider the existence and level of
backlog at any given date to be a significant factor affecting its
business, except in establishing its production schedules. This is
primarily due to the fact that orders may be cancelled up until the
time the dealer takes delivery, although such cancellations have not
been significant to date. The dollar amount of backlog, subject to
the above described cancellation provision, was $3,830,356 and
$8,303,771 at October 31, 1998 and 1997, respectively. All of the
backlog existing at October 31, 1998 is expected to be filled within
the current fiscal year.
Sources and Availability of Raw Materials
Registrant purchases raw materials and components from a
number of alternative sources and is not dependent upon any
particular supplier.
Patents
Although Registrant's products are marketed under various
trade names, Registrant does not believe that patents, trademarks,
licenses, franchises and concessions are of material importance to
its business.
3
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Item 1. Continued
Research and Development
Registrant periodically revises and redesigns its models
in response to consumer demand. These revisions and redesigns can
be extensive, if necessary, in order to obtain market acceptance.
Registrant manufactures and sells manufactured housing and
recreational vehicles and engages in new product development.
Number of Employees
On October 31, 1998, Registrant had 681 employees at its
manufacturing plants and executive offices.
Seasonal Considerations
Registrant's sales and production volume traditionally
increase during the second and third quarters of the fiscal year.
During fiscal 1998, fifty-three percent of sales were achieved
during the second and third fiscal quarters.
Government Regulation
The manufacture and distribution of Registrant's
manufactured housing and recreational vehicle products are subject
to governmental regulation in the United States and Canada at the
federal, state, provincial and local levels. Compliance with those
governmental regulations, including provisions regulating the
discharge of materials into the environment or otherwise relating to
the protection of the environment, is not expected to have a
material adverse effect on Registrant.
Business Risks
Demand for Registrant's products is dependent upon
the availability and cost of gasoline, weather conditions, available
consumer credit and economic conditions. Relaxed consumer credit
and the up-beat economy favorably affected dealers and retail
purchasers of Registrant's manufactured housing products in fiscal
1998. Nevertheless, KIT's 1999 recreational vehicles models were well
received by the dealers and KIT is optimistic about the favorable
outcome of future operations of this segment.
4
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Item 1. Continued
Working Capital
Accounts receivable balances fluctuate generally with the
timing of shipments during the month since the majority of sales are
either on C.O.D. terms or are financed by dealers through flooring
arrangements with financial institutions. Recreational vehicle
finished goods inventory balances are subject to seasonal
variations. (See "Method of Product Distribution" and "Seasonal
Considerations" above.) A short delivery lead time exists for the
majority of recreational vehicle and manufactured housing raw
material purchases, thereby allowing Registrant to maintain low
levels of raw materials inventory. Registrant is a party to an
unsecured revolving credit agreement with a bank that provides
financing of seasonal working capital requirements.
5
<PAGE>
Item 2. Properties
Registrant leases general executive and administrative
offices in Long Beach, California. The lease expires on March 14,
1999. Registrant owns an 11,160 square foot building, situated on
1.2 acres, housing operational offices in Caldwell, Idaho. The
following table sets forth certain information about the property
and facilities utilized by Registrant for manufacturing and plant
administrative purposes, and the property leased to others (all
property is owned by Registrant unless otherwise noted):
<TABLE>
<CAPTION>
Approximate Approximate
Facility And Location Acres Square Feet
Recreational vehicle plants:
<S> <C> <C>
Caldwell, Idaho (R2) 15.7 55,200
Caldwell, Idaho (R1) 15.8 53,000
Caldwell, Idaho (RSA) 10.9 67,800 (1)
Caldwell, Idaho (Chassis) .5 9,000
McPherson, Kansas 23.0 47,400 (4)
McPherson, Kansas 12.5 67,600 (4)
Chino, California 10.0 47,700 (2)
Manufactured housing plants:
Caldwell, Idaho 9.5 99,100 (3)
Caldwell, Idaho 2.1 13,200 (1)
</TABLE>
(1)81,000 square foot Production Facility is being utilized by
recreational vehicles and by manufactured housing.
(2)Production Facility is leased to third party.
(3)In 1997, 6,600 square foot storage area was added and 28,500
square foot building addition was also added to the existing
64,000 square foot Production Facility.
(4)In April of 1998, the production activities at this plant
location were permanently idled.
6
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Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
7
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Information in response to this item is incorporated by
reference from the information appearing in Registrant's Annual
Report to Shareholders for the fiscal year ended October 31, 1998,
at pages 1 and 12.
Item 6. Selected Financial Data
Information in response to this item is incorporated by
reference from the information appearing in Registrant's Annual
Report to Shareholders for the fiscal year ended October 31, 1998,
at page 14.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information in response to this item is incorporated by
reference from the information appearing in Registrant's Annual
Report to Shareholders for the fiscal year ended October 31, 1998,
at pages 4 and 5.
Item 8. Financial Statements and Supplementary Data
Information in response to this item is incorporated by
reference from the Financial Statements and the Notes to Financial
Statements in Registrant's Annual Report to Shareholders for the
fiscal year ended October 31, 1998, at pages 6 through 11 and pages
13 through 15 of the Registrant's Annual Report.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.
Item 11. Executive Compensation
Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.
9
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements
Annual Report
Page(s)
Balance Sheets at October 31, 1998 and
1997 6
Statements of Income for each of the three
years in the period ended October 31, 1998 7
Statements of Shareholders' Equity for each
of the three years in the period ended
October 31, 1998 7
Statements of Cash Flows for each of
the three years in the period ended
October 31, 1998 8
Notes To Financial Statements 9-11
Report of Independent Accountants 12
The financial statements and the Report of Independent
Accountants listed in the above index which are included in
Registrant's Annual Report to Shareholders for the fiscal year ended
October 31, 1998 are hereby incorporated by reference. With the
exception of the items referred to above and in Items 1, 5, 6, 7 and
8, Registrant's Annual Report to Shareholders for the fiscal year
ended October 31, 1998 is not to be deemed filed as part of this
report.
10
<PAGE>
Item 14. Continued
(a) (2) Financial Statement Schedules
FORM
10-K
PAGE
Report of Independent Accountants on
Schedules 12
Schedules:
For each of the three years in the
period ended October 31, 1998
VIII Valuation and Qualifying
Accounts 13
Schedules other than those listed above are omitted for
the reason that they are not required or are not applicable, or the
required information is shown in the financial statements or notes
thereto. Columns omitted from schedules filed have been omitted
because the information is not applicable.
(a) (3) Exhibits
(3) Articles of Incorporation and By-Laws adopted by
Registrant.
(10) Material Contracts.
(A) 1. Incentive Bonus Plan.
(13) Annual report to security holders.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal
quarter ended October 31, 1998.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULES
To the Shareholders and Board of Directors
of KIT Manufacturing Company
Our report on the financial statements of KIT
Manufacturing Company has been incorporated by reference in this
Form 10-K from page 12 of the 1998 Annual Report to Shareholders of
KIT Manufacturing Company. In connection with our audits of such
financial statements, we have also audited the related financial
statement schedules listed in the index on page 11 of this Form
10-K.
In our opinion, the financial statement schedules referred
to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
December 15, 1998
12
<PAGE>
<TABLE>
KIT MANUFACTURING COMPANY
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended October 31, 1998, 1997 And 1996
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
(1) (2)
Charged To Charged To
Balance At Costs Other Balance At
Beginning Of And Accounts Deductions End Of
Description Period Expenses Describe Describe Period
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
Year ended October 31, 1996 $44,000 - $1,000(A) $43,000
Year ended October 31, 1997 $43,000 - $1,000(A) $42,000
Year ended October 31, 1998 $42,000 - $5,000(A) $37,000
(A)Write-off of uncollectible accounts.
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
KIT Manufacturing Company
By:/s/Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
/s/Dan Pocapalia Jan.28, 1999 /s/John W.H. Hinrichs Jan.28, 1999
Dan Pocapalia John W.H. Hinrichs
Chairman of the Board, Director
Chief Executive Officer
and President (Principal
Executive Officer)
/s/John F. Zaccaro Jan.28, 1999 /s/Frank S. Chan Jan.28, 1999
John F. Zaccaro Frank S. Chan
Director Director
/s/Bruce K. Skinner Jan.28, 1999 /s/Fred W. Chel Jan.28, 1999
Bruce K. Skinner Fred W. Chel
Vice President - Treasurer Director
(Principal Financial and
Accounting Officer)
14
<PAGE>
INDEX TO EXHIBITS
EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Sequential
Page Number
(3) Articles of Incorporation and By-Laws adopted
by Registrant 17
(10) Material Contracts
(A) 1. Incentive Bonus Plan 18
(13) Annual Report to Shareholders *
* Incorporated by reference
15
<PAGE>
(3) Articles of Incorporation and By-Laws
The amended and restated Articles of
Incorporation and By-Laws of the Registrant are hereby
incorporated by reference from the exhibits to Form 10-K
(File No. 2-31520) as filed for the fiscal year ended
October 31, 1987.
16
<PAGE>
(10) Material Contracts
(A) 1. Incentive Bonus Plan
Registrant maintains an Incentive Bonus
Plan under which incentive bonuses may be paid to
key management personnel pursuant to individual
agreements relating to the profitability of the
participant's area of responsibility. The amount
of the bonus paid generally increases as the
profitability of the area of responsibility
increases. Time periods for which performance is
measured include fiscal quarters and in some cases
fiscal years. Payments are typically made within
75 days after the time period for which
performance is measured. The agreements are
reviewed annually and may be terminated at will by
either party.
17
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KIT Manufacturing Company
1998 Annual Report
18
<PAGE>
<TABLE>
KIT Manufacturing Company
Financial Highlights
<CAPTION>
(Dollars in thousands except per share amounts)
1998 1997 1996 1995 1994
Operating Results for the
Year Ended October 31
<S> <C> <C> <C> <C> <C>
Sales $61,030 $76,465 $97,158 $101,462 $89,722
Net (loss) income $(357) $(2,312) $1,431(1) $1,349(2) $1,891(3)
Net (loss) income per share:
Basic ($0.32) ($2.08) $1.29(1) $1.21(2) $1.61(3)
Diluted ($0.32) ($2.08) $1.27(1) $1.21(2) $1.59(3)
Weighted-average shares outstanding:
Basic 1,110,934 1,110,934 1,110,934 1,110,934 1,177,283
Diluted 1,110,934 1,110,934 1,130,433 1,110,934 1,189,308
Working capital $6,861 $7,215 $9,984 $8,427 $7,622
(1) Includes gain on business interruption claim of $373,000, net of related
income taxes, or $0.34 per share.
(2) Includes gain on business interruption claim of $423,000, net of related
income taxes, or $0.38 per share.
(3) Includes gain on involuntary conversion of plant facility and equipment and
business interruption claim $671,000, net of related income taxes, or $0.57 per
share.
</TABLE>
About the Company:
KIT Manufacturing Company produces manufactured
housing and recreational vehicles marketed by an
independent dealer network in 25 states in the West,
Midwest, South and Southeast, as well as Canada and
Japan. KIT homes are permanent living structures
that are built utilizing materials similar to conventional
housing. KIT recreational vehicle products are used
primarily for camping or vacation travel and provide
a variety of living accommodations.
19
<PAGE>
To Our Shareholders:
Fiscal 1998 was an extremely challenging year for the Company. Sales for
recreational vehicles declined 34 percent. This decline was due to several
factors. The primary reason was the fact that the recreational vehicle
operation in McPherson, Kansas was terminated in March 1998 for economic
reasons.
Despite the decrease in overall RV sales and the significant costs incurred
to shut down the McPherson, Kansas plant, the results from operations for
this division improved significantly in comparison to fiscal 1997. This was
due to cost reductions and design changes incorporated in the RV products
which improved overall margins and made the RVs more market competitive. In
addition, the Company revised its recreational vehicle marketing programs
during fiscal 1998 to capture increased market share.
The Company restructured a number of key management positions and made a
number of operational facility changes in the RV Division in fiscal 1997 and
1998. Management believes that the realignment of the RV Division will
provide for a more competitive operating environment which should result in
improved performance in fiscal 1999.
Currently, KIT has initiated a search for a Chief Operating Officer to
complete the planned reorganization of the Company. This position will be
key to the ongoing operational improvements currently underway for future
growth and expansion of the RV and Manufactured Housing Divisions.
The National RV show in Louisville, Kentucky held during the latter part
of 1998 provided management with an optimistic view of what lies ahead for
fiscal 1999. Our restyled recreational vehicle lines, enhanced by our low
and mid-line products, were extremely well received by the dealers. Manage-
ment believes, based on the enthusiastic response by our dealer body, that
the Company will meet the demands of this highly competitive market where
the challenge is to provide moderately-priced, high-value products.
During the latter part of fiscal 1997, the Manufactured Housing Division
completed its plant expansion, giving this facility a production capacity
increase of 40 percent during fiscal 1998. The expansion now gives this
division a competitive edge to produce at maximum volume with improved
labor efficiencies. As evidence of the changes, operational results for
this division improved 125 percent during fiscal 1998 in comparison to
fiscal 1997.
The Manufactured Housing Division began participation in a retail sales
partnership during fiscal 1998. The performance of this arrangement has
exceeded all of managements' expectations. The division is now reviewing
plans for participation in a second retail sales operation which should be
completed by March of 1999. A third retail joint venture is currently in
the development stage and should be completed by the end of fiscal 1999.
The Company's financial position remains strong. KIT has no long-term debt
and its line of credit remains unused at fiscal year-end. Working capital,
despite a 5 percent decline, is more than sufficient to provide the Company
with funds necessary for operational maintenance and growth.
Fiscal 1999 will see the Company continue to concentrate on expanding its
market share by providing high quality, high value, innovative products.
First quarter operations will see our normal seasonal slowdown, however,
management believes that the balance of the fiscal year should yield
profitable operating results.
Sincerely,
/s/Dan Pocapalia
Dan Pocapalia
Chairman, President and
Chief Executive Officer
20
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Recreational Vehicles
KIT is one of the major manufacturers of towable travel trailers and
fifth-wheels in the United States. KIT's position in the industry is the result
of 54 years of consistently producing and delivering high quality, high value
products to our customers. KIT products are well known for their reliability
and their retained value and at "trade-in" time. KIT RVs are in high demand
in the second time entry-level buyer market and the more knowledgeable buyer.
The baby-boomer generation and younger families are discovering the
affordability and comfort of recreational vehicle travel. The Company's
philosophy of uncompromising quality control standards has driven KIT to
new heights in retail customer loyalty from the oldest to the newest members
of RV life-style.
KIT's RV products incorporate high quality, reliable name-brand appliances,
interior components and accessories. In our 1999 product lines, the Company
has introduced many new innovations in our all-new model lineup in response
to our customers' demands. In addition to new interiors and external
graphics, the 1999 floor plans have been further enhanced to attract a
broader base of consumers. These changes will significantly improve KIT
dealer base opportunities.
KIT produces a wide range of recreational vehicle products in its
manufacturing facilities in Caldwell, Idaho. KIT RV's measure from 19 to 38
feet in length, are more than eight feet wide and provide sleeping
accommodations for 2 to 10 persons.
KIT produces its travel trailers and fifth-wheels under the brand names
of Espre', Road Ranger, SunChaser, Companion, Millennium and Patio Hauler.
The entry level Sun Chaser and Espre' brands have been extremely well
received by the dealer body. KIT expects that the retail buyers' enthusiastic
reaction will be to choose those products for the many quality features and
their low price point.
The Road Ranger and Companion lines, with over thirty-eight models, are in
the mid-priced market. These models are configured with a wide range of
features. The all-new Millennium is our high-end product offering. This line
has four different models and they provide the largest living and storage
areas and feature benefits in their price range. They appeal to the
discerning buyer and full-time RVers with a vast selection of features as
standard equipment.
Designed for adventure, the Patio Hauler features a cargo area for hauling
off-road vehicles and other sporting equipment. The cargo area then converts
to an enclosed patio when the "toys" are removed. The four available floor
plans all feature the patio concept as well as provide the buyer with a fully
appointed living area separate from the patio.
Retail prices for the more than 38 KIT floor plans range from $8,500 to
$58,000. This range covers approximately 80 percent of the travel trailer and
fifth-wheel market.
More than 120 independent dealers now distribute KIT recreational vehicles
to the retail consumer throughout the western United States and Western
Canada. The Millennium and Patio Hauler models are retailed throughout the
continental United States. KIT provides its dealer network system with
national media advertising, sales literature, training and special support
programs, along with its national reputation for product quality and service.
RV use is a flourishing source of recreation and relaxation for many
Americans regardless of age or economic background. Over the past 54 years,
KIT has supplied this growing market with the quality and affordability that
fulfills the desires of people who enjoy this type of comfort and convenience.
The Company continues to strive for excellence in its products and service in
its quest to make the RV experience a most enjoyable one for its many
satisfied customers.
Manufactured Housing
The manufactured housing division's recent growth continues to run higher
than industry average. Value pricing coupled with a continuing emphasis on
reducing operating costs has had a positive effect on this division.
Manufactured housing builds both single and multi-sectioned dwellings
designed to be transported to a prepared homesite. Multi-sectioned homes
offer the appearance and living space of traditional site-built housing and
have become the dominant portion of our sales. KIT homes are built in a
controlled environment which minimizes the variables inherent in outdoor
construction. By standardizing models we can build homes with greater
efficiency, and consequently at lower cost, than site-built homes with the
same features.
The manufactured housing division continues to aggressively develop new
products that incorporate innovative floor plans, modern colors and
functional design. KIT manufactured homes are distributed from production
facilities in Caldwell, Idaho through a network of approximately 68 dealers
located in 9 Western states.
KIT's homes are marketed in five product lines. The Oakcrest 14' wide home
offers gracious, convenient living in modest floor space. The Royal Oaks
home appeals to buyers with an interest in deluxe entry-level housing. Our
Sierra XL homes are generally larger and provide a wide array of styles and
custom features. The Golden State line, our most elegant series of homes,
provides outstanding value for individuals who place a premium on comfort
and luxury. Living space in the 52 available floor plans range
from about 530 to more than 2,500 square feet. Retail prices, exclusive of
land costs, range from approximately $20,000 to $120,000.
In fiscal 1998, KIT homes enjoyed a greater share of the single family home
subdivision sites. With an additional 40% production capacity now available,
our future in this market should support KIT's housing division expansion.
As the nation continues to search for solutions to the problem of affordable,
single-family housing, KIT stands ready to provide attractive, energy-efficient
homes at competitive prices.
21
<PAGE>
KIT Manufacturing Company
Management's Discussion And Analysis of Results of Operations and
Financial Condition
Results of Operations
Fiscal 1998 Compared to 1997
Sales declined 20% to $61.0 million compared to fiscal 1997. The net loss
was $357,000, or $0.32 per share, in comparison to a net loss in fiscal 1997
of $2,312,000, or $2.08 per share. The net losses were primarily from
operational losses in the RV division. These losses were the result of a
significant decline in sales due to competitive pricing issues in 1998 and
1997 and the costs associated with the closure of the McPherson, Kansas RV
plant in fiscal 1998. The manufactured housing division implemented modest
price increases in 1998 and 1997 to counter increases in raw material costs.
Recreational vehicle division sales decreased 34% to $34.6 million. The
overall decrease in RV shipments was 30%, down to 2,511 units. This decline
consisted of a decrease in fifth-wheel model shipments from 1,774 units in
1997 to 1,056 units in fiscal 1998 and travel trailer shipments of 1,455
units down from 1,808 shipped in 1997. The model mix tended toward lower
priced units in fiscal 1998. Because of the results of operations during
fiscal 1997, the Company made key management changes and realigned the RV
operations to be more competitive in fiscal 1998. Based on these changes,
during fiscal 1998, the RV division improved its operating results by 46%.
Management believes that this division is fully prepared to achieve profitable
operating results in fiscal 1999.
Manufactured housing sales increased 11% to $26.4 million. This increase
reflected a 6% rise in shipments of single-section homes to 103 units and a
20% increase in shipments of multi-section homes to 677 units. Total unit
shipments increased 18% to 780 homes in fiscal 1998.
Gross profit as a percent of sales increased to 8% in comparison to 4% in
1997. The primary reasons for the increase were an increase in operating
efficiencies in both divisions and increased sales volume in manufactured
housing.
Selling, general and administrative expenses remained at 9% of sales in
comparison to fiscal 1997. The Company increased its selling costs as a
percentage of sales in RV's in order to maintain market share as competition
increased, offset by decreases in administrative expenses.
Net interest income of $55,000 in 1998, as compared to net interest expense
of $36,000 in 1997, was the result of higher average cash investments and
lower average borrowings in fiscal 1998 as compared to fiscal 1997.
Fiscal 1997 compared to 1996
Sales declined 21% to $76.5 million compared to fiscal 1996. The net loss
was $2,312,000, or $2.08 per share, in comparison to net income in fiscal
1996 of $1,431,000, or $1.29 per share. Net income in 1996 included an
after-tax gain from insurance proceeds on a business interruption claim of
$373,000, or $0.34 per share. The manufactured housing division implemented
modest price increases in 1997 and 1996 to counter increases in raw material
costs.
Recreational vehicle division sales decreased 30% to $52.7 million. The
overall decrease in RV shipments was 31% down to 3,582 units in 1997. This
decline consisted of a decrease in fifth-wheel model shipments from 2,501
units in 1996 to 1,774 units in fiscal 1997 and travel trailer shipments of
1,808 units down from 2,728 shipped in 1996. The model mix moved toward
lower priced units in fiscal 1997. Management believes that the Company is
fully prepared to meet this continuing trend by offering lower priced units
in fiscal 1998.
Manufactured housing sales increased 10% to $23.8 million. This increase
reflected a 64% rise in shipments of single-section homes to 97 units and
an 8% increase in shipments of multi-section homes to 563 units. Total unit
shipments increased 14% to 660 homes in fiscal 1997.
Gross profit as a percent of sales decreased to 4% in comparison to 11% in
1996. The primary reasons for the decrease were a decrease in operating
efficiencies, lower sales volume and increased material costs.
Selling, general and administrative expenses remained at 9% of sales in
comparison to fiscal 1996. The Company increased its selling costs in RV's
in order to maintain market share as competition increased, offset by
decreases in administrative costs.
Net interest expense of $36,000 in 1997, as compared to net interest expense
of $13,000 in 1996, was the result of higher average borrowing levels as the
Company maintained its inventories at a higher average level than in fiscal
1996.
22
<PAGE>
Liquidity and Capital Resources
The financial position of the Company remains strong. The current ratio at
fiscal-year end 1998 remained at 2.0 in comparison to fiscal 1997.
In addition to funding capital requirements with available funds, the
Company, through financing activities, funds seasonal working capital
requirements with cash from periodic borrowings on its unsecured revolving
line of credit. See Note 4 of the Notes to Financial Statements for
discussion of the line of credit. There were no borrowings against the line
of credit at fiscal year-end 1998 or 1997.
The Company believes that available funds, supplemented as needed with funds
available on its line of credit, will provide it with sufficient resources
to meet present and reasonably foreseeable working capital requirements and
other cash needs.
Other
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, Reporting Comprehensive Income. This statement, which must be
adopted by the Company in fiscal 1999, establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Also in 1997, the FASB issued Statement No. 131, Disclosures
About Segments of an Enterprise and Related Information, which establishes
standards for the way that companies report information about operating
segments in annual financial statements, and requires that those companies
report selected information about operating segments in interim financial
reports issued to shareholders. This statement must also be adopted in
fiscal 1999. The Company believes that the adoption of these two new
standards will not have a material impact on its reported results of
operations.
The Company has instituted a program to determine whether its computer
information systems are able to interpret dates beyond the year 1999 (the
"Year 2000 Compliance Program") and has implemented programming
modifications to its main operational and financial reporting systems that
will address these issues. All modified programming is currently operational.
The Company believes that its present computer information systems software
and hardware is Year 2000 compliant and intends to obtain certification of such
for any purchases of computer software and hardware.
The Company is also in the process of evaluating non-information technology
systems, which would include telephone equipment, time-keeping equipment and
surveillance equipment. The Company expects this evaluation to be completed
by early 1999.
The Company is in the process of contacting its major suppliers, service
vendors and customers regarding Year 2000 compliance and anticipates that
this phase of the Year 2000 Compliance Program will be completed early in
fiscal 1999.
The total cost of the Year 2000 Compliance Program is not expected to be
material to the Company's financial position or results of operations. To
date, the Company has spent less than $25,000 on Year 2000 compliance. The
Company believes that the cost of ensuring Year 2000 compliance for its own
operational and financial systems will be less than $50,000.
Although management believes the Company has an adequate plan to be Year
2000 compliant, there can be no assurance that this program will ultimately
be successful. The Company believes that it has sufficient resources to
implement new and modified computer systems and programming to address the
Year 2000 issue, and, accordingly, has not to date identified the need for
any contingency planning. However, the Company's ongoing assessment of its
financial and operations systems and non-information technology systems
may reveal the need for contingency planning in the future.
23
<PAGE>
<TABLE>
KIT Manufacturing Company
Balance Sheets
<CAPTION>
October 31, 1998 1997
ASSETS
Current Assets
<S> <C> <C>
Cash and cash investments $3,230,000 $3,673,000
Accounts receivable, net of allowance for doubtful
accounts of $37,000 in 1998 and $42,000 in 1997 4,041,000 4,533,000
Inventories 4,821,000 3,402,000
Prepaids, income taxes receivable and deferred 1,372,000 2,632,000
Total Current Assets 13,464,000 14,240,000
Property, Plant and Equipment, at cost
Land 492,000 492,000
Buildings and improvements 7,931,000 7,047,000
Machinery and equipment 3,866,000 4,148,000
Construction in progress 402,000 1,055,000
12,691,000 12,742,000
Less accumulated depreciation (5,956,000) (5,898,000)
6,735,000 6,844,000
Other Assets 152,000 53,000
$20,351,000 $21,137,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,688,000 $2,697,000
Accrued payroll and payroll related liabilities 1,587,000 1,604,000
Accrued marketing programs 718,000 809,000
Accrued expenses 1,610,000 1,915,000
Total Current Liabilities 6,603,000 7,025,000
Deferred Income Taxes 1,480,000 1,487,000
8,083,000 8,512,000
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1 par value; authorized 1,000,000
shares; none issued
Common stock, without par value; authorized 5,000,000
shares; issued and outstanding 1,110,934 shares in
1998 and 1997 750,000 750,000
Additional paid-in capital 842,000 842,000
Retained earnings 10,676,000 11,033,000
Total Shareholders' Equity 12,268,000 12,625,000
$20,351,000 $21,137,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
24
<PAGE>
<TABLE>
KIT Manufacturing Company
Statements of Income
<CAPTION>
For the Years Ended October 31, 1998 1997 1996
<S> <C> <C> <C>
Sales $61,030,000 $76,465,000 $97,158,000
Costs and expenses
Cost of sales 55,920,000 73,176,000 86,473,000
Selling, general and admin. expenses 5,583,000 7,074,000 8,911,000
61,503,000 80,250,000 95,384,000
Operating (loss) income (473,000) (3,785,000) 1,774,000
Other income (expense)
Interest (expense) income, net 55,000 (36,000) (13,000)
Equity in loss of retail sales partnership (54,000)
Gain on business interruption claim 620,000
(Loss) income before income taxes (472,000) (3,821,000) 2,381,000
(Benefit) provision for income taxes (115,000) (1,509,000) 950,000
Net (loss) income $(357,000) $(2,312,000) $1,431,000
Net (loss) income per share:
Basic ($0.32) ($2.08) $1.29
Diluted ($0.32) ($2.08) $1.27
Weighted-average shares outstanding:
Basic 1,110,934 1,110,934 1,110,934
Diluted 1,110,934 1,110,934 1,130,433
</TABLE>
<TABLE>
<CAPTION>
Statements of Shareholders' Equity
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1995 1,110,934 $750,000 $842,000 $11,914,000 $13,506,000
Net income 1,431,000 1,431,000
Balance, October 31, 1996 1,110,934 $750,000 $842,000 $13,345,000 $14,937,000
Net loss (2,312,000) (2,312,000)
Balance, October 31, 1997 1,110,934 $750,000 $842,000 $11,033,000 $12,625,000
Net loss (357,000) (357,000)
Balance, October 31, 1998 1,110,934 $750,000 $842,000 $10,676,000 $12,268,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
25
<PAGE>
<TABLE>
KIT Manufacturing Company
Statements of Cash Flows
<CAPTION>
For the Years Ended October 31, 1998 1997 1996
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Cash received from customers $61,523,000 $79,958,000 $96,711,000
Life Insurance proceeds 72,000
Interest received 166,000 105,000 53,000
Cash received from operations 61,689,000 80,135,000 96,764,000
Cash paid to suppliers and employees 62,710,000 77,565,000 95,593,000
Interest paid 111,000 141,000 66,000
Income taxes (received) paid (1,263,000) (47,000) 1,073,000
Cash disbursed for operations 61,558,000 77,659,000 96,732,000
Net cash provided by operating activities 131,000 2,476,000 32,000
Cash Flows From Investing Activities:
Purchase of property, plant and equipment, net (780,000) (969,000) (434,000)
Insurance proceeds from business interruption claim 620,000
Changes in other current and non-current assets 206,000 (115,000) (155,000)
Net cash (used in) provided by investing activities (574,000) (1,084,000) 31,000
Cash Flows From Financing Activities:
Proceeds from line-of-credit borrowings 17,790,000 12,374,000 4,900,000
Principal payments on line-of-credit borrowings (17,790,000) (12,374,000) (4,900,000)
Net cash used in financing activities -- -- --
Net (decrease) increase in cash (443,000) 1,392,000 63,000
Cash and cash investments at beginning of year 3,673,000 2,281,000 2,218,000
Cash and cash investments at end of year $3,320,000 $3,673,000 $2,281,000
_______________________________________________________________________________________________________
Reconciliation of Net (Loss) Income to Net Cash Provided by
(Used in) Operating Activities:
Net (loss) income $(357,000) $(2,312,000) $1,431,000
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 639,000 677,000 670,000
Gain on business interruption claim -- -- (620,000)
Decrease (increase) in accounts receivable 492,000 3,493,000 (676,000)
(Increase)decrease in inventories (1,419,000) 3,767,000 (1,501,000)
(Decrease) increase in accounts payable and accruals (429,000) (1,667,000) 894,000
Change in accrued income taxes 1,205,000 (1,482,000) (166,000)
Net cash provided by operating activities $131,000 $2,476,000 $32,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
26
<PAGE>
KIT Manufacturing Company
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Cash and Cash Investments
The Company invests its cash in high quality financial instruments, all of
which are considered cash equivalents. The Company considers all highly
liquid financial instruments with a maturity of three months or less at the
time of purchase to be cash equivalents. Cash equivalents are carried at
cost, which approximates market. The Company also maintains deposits at
financial institutions in amounts in excess of federally insured limits.
Management believes that credit risk related to its investments is limited due
to the quality of the investments and the Company's policy which limits credit
exposure to any one financial institution.
Valuation of Inventories
Inventories are stated at the lower of cost (last-in, first-out for material
and first-in, first-out for labor and overhead) or market.
Depreciation and Amortization
For financial reporting purposes, depreciation and amortization of property,
plant and equipment is generally provided for on a straight-line basis, using
estimated useful lives of 10 years for land improvements, 20 to 33-1/3 years
for buildings and improvements, 3 to 10 years for equipment and lease terms
for leasehold improvements. Upon sale or disposition of assets, any gain or
loss is included in the statement of income. Expenditures for maintenance,
repairs and minor renewals are charged to expense as incurred; expenditures
for betterments and major renewals are capitalized.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, ("SFAS 109"), which requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Basic and Diluted Loss or Income Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"),
which was adopted by the Company effective for the year ended October 31,
1998, as required by the statement. SFAS 128 requires the presentation of
both basic and diluted loss or income per share on the Statements of Income.
Basic loss or income per share is computed based on the weighted-average
number of shares outstanding during each year. Diluted loss or income per share
is computed based on the sum of the weighted-average number of share
outstanding plus potential common share arising out of stock options issued
in 1994, unless the inclusion of such options would result in antidilution.
Loss or income per share information has been restated to conform to the
requirements of the statement. The Company's loss or income amounts used for
per share calculations are the same for both the basic and diluted methods.
There were no potential common shares included in the calculation of diluted
loss per share for the years ended October 31, 1998 and 1997, because the
effect would have decreased the loss per share amount and therefore been
antidilutive. Potential common shares included in the calculation of diluted
income per share were approximately 19,000 for the year ended October 31, 1996.
Insurance
The Company is self-insured for workers' compensation for its plant
locations, officers and directors, and product liability. The Company has
recognized an estimated potential liability for incurred but not reported
claims. The Company recognized experience refunds from its medical insurance
carrier amounting to $230,000 in 1996.
Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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.
Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("SFAS 123"), which is effective for transactions entered into
in fiscal years that begin after December 15, 1995. The Company has
determined that this method of accounting for stock based compensation has no
effect on the financial statements as presented since the most recent stock
option grants occurred in 1994.
Retail Sales Partnership
The Company's investment in the Retail Sales Partnership is accounted for
under the equity method of accounting.
27
<PAGE>
2. Business Interruption Claim
In mid-June, 1992, the McPherson, Kansas manufactured housing plant facility
was destroyed by a tornado. In addition, all of the manufacturing equipment
and inventories were lost to water and wind damage. The storm also destroyed
the finished goods inventory of the RV plant facility in the same location.
The Company recorded a gain in 1996 of $620,000 for a business interruption
claim related to this matter.
3. Stock Options
During June 1994, the Company granted to five officers of the Company,
options to purchase up to 96,944 shares of the Company's common stock, at
100% of the then fair value, or $10.38 per share. Also in June 1994, the
Company granted to one such officer an additional option to purchase up to
35,056 shares of the Company's common stock, at 110% of the then fair value,
or $11.41 per share. Options granted vest in four equal annual installments
beginning one year after the date of the grant. The options to purchase the
96,944 shares of the Company's common stock stock remains outstanding
(subject to termination of employment, death or permanent disability
of the holder, as set forth in the option agreements) for a period of 10 years
from the date of grant. The option to purchase the 35,056 additional shares of
the Company's common stock remains outstanding (subject to termination of
employment, death or permanent disability of the holder, as set forth in the
option agreements) for a period of 5 years from the date of grant. On October
31, 1998, 1997 and 1996, total unexercised options were 132,000, of which
132,000, 99,000 and 66,000 options, respectively, were exercisable.
4. Bank Credit Line
The Company is party to an unsecured revolving credit agreement with a bank
that provides financing of seasonal working capital requirements. There are
no compensating balance requirements under the agreement. Major provisions of
the agreement include interest at the lesser of the bank's prime rate or
market rate, and certain minimum requirements as to the Company's working
capital and debt-to-equity relationships. At October 31, 1998, there was no
outstanding balance on the revolving credit line, and the maximum borrowing
permitted was the lesser of $4,000,000 or the sum of 80% of eligible trade
receivables and 50% of inventories, less any commercial and standby letters
of credit outstanding up to a maximum of $1,000,000. Interest costs charged
to expense for the fiscal years 1998, 1997 and 1996 were $111,000, $141,000
and $66,000, respectively.
5. Commitments and Contingencies
The Company was contingently liable at October 31, 1998 to various financial
institutions on repurchase agreements in connection with wholesale inventory
financing. In general, inventory is repurchased by the Company upon customer
default with a financing institution and then resold through normal
distribution channels. The total value of finished units subject to such
agreements as of October 31, 1998 and 1997 was approximately $9,826,000 and
$12,312,000, respectively.
In addition, the Company is contingently liable to financial institutions
for standby letters of credit totalling $778,000 as of October 31, 1998 and
1997, respectively. These letters of credit were established to satisfy the
self-insured workers' compensation regulations of the states in which the
Company conducts manufacturing operations.
Management does not expect that losses, if any, from the contingencies
described above will be of material importance to the financial condition or
earnings of the Company.
<TABLE>
<CAPTION>
7. Inventories
Inventories are summarized as follows:
October 31, 1997 1996
<S> <C> <C>
Raw material $1,758,000 $1,876,000
Work in process 685,000 907,000
Finished goods 2,378,000 619,000
$4,821,000 $3,402,000
The excess of current replacement cost over last-in, first-out cost was
$852,000 at October 31, 1998 and $1,189,000 at October 31, 1997.
</TABLE>
7. Industry Segment Information
Information about the Company's operations within industry segments for
the years ended October 31, 1998, 1997, and 1996 is presented on page 13.
28
<PAGE>
KIT Manufacturing Company
Notes to Financial Statements
<TABLE>
<CAPTION>
8. Income Taxes
The components of the (benefit) provision for income taxes are as follows:
For the year ended October 31, 1998 1997 1996
Current:
<S> <C> <C> <C>
Federal $(58,000) $(1,263,000) $712,000
State (266,000) 195,000
(58,000) (1,529,000) 907,000
</TABLE>
<TABLE>
<CAPTION>
Deferred:
<S> <C> <C> <C>
Federal (46,000) 54,000 47,000
State (11,000) (34,000) (4,000)
(57,000) 20,000 43,000
$ (115,000) $(1,509,000) $950,000
</TABLE>
<TABLE>
<CAPTION>
The sources of deferred taxes were as follows:
October 31, 1998 1997 1996
<S> <C> <C> <C>
Accrued warranty costs $197,000 $(160,000) $(52,000)
Workers' compensation reserves 76,000 (60,000) 31,000
State income and franchise taxes (102,000) 167,000 7,000
Inventory cost capitalization (44,000) 105,000 (16,000)
Net operating loss carryforwards (55,000)
Other (129,000) (32,000) 73,000
$(57,000) $20,000 $43,000
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of the effective tax rates and the U.S. statutory tax rate is summarized as follows:
October 31, 1998 1997 1996
<S> <C> <C> <C>
Statutory tax rate (34.0%) 34.0% 34.0%
State tax provision, net of federal tax effect (1.5) (1.8) 4.1
Tax exempt interest (8.3) (0.2) (0.3)
Adjustment of prior years income tax accruals 16.9
Other 2.5 (3.5) 2.1
(24.4%) (39.5%) 39.9%
</TABLE>
<TABLE>
<CAPTION>
The components of the deferred tax asset and liability are as follows :
October 31, 1998 1997
Deferred tax asset:
<S> <C> <C>
Allowance for doubtful accounts $20,000 $20,000
Inventory adjustment 77,000 33,000
Accrued expenses 766,000 862,000
State income taxes 32,000 (70,000)
$895,000 $845,000
Deferred tax liability:
Accelerated depreciation $385,000 $392,000
Involuntary conversion of plant facility
and equipment 1,095,000 1,095,000
$1,480,000 $1,487,000
The Company did not record a valuation allowance against the deferred tax
asset in fiscal 1998 or 1997.
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of KIT Manufacturing Company
We have audited the accompanying balance sheets of KIT Manufacturing
Company as of October 31, 1998 and 1997, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended October 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial statements referred to above present fairly, in
all material respects, the financial position of KIT Manufacturing Company as
of October 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1998, in
conformity with generally accepted accounting principles.
Los Angeles, California /s/ PricewaterhouseCoopers LLP
December 15, 1998
30
<PAGE>
<TABLE>
KIT Manufacturing Company
Industry Segment Information
<CAPTION>
October 31, 1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
SALES
Manufactured housing $26,410 $23,807 $21,580
Recreational vehicles 34,620 52,658 75,578
Total sales $61,030 $76,465 $97,158
(LOSS) INCOME BEFORE INCOME TAXES
Operating (loss) income
Manufactured housing $2,021 $876 $933
Recreational vehicles (2,494) (4,661) 841
Total operating (loss) income (473) (3,785) 1,774
Interest (expense) income, net 55 (36) (13)
Equity in loss of retail sales partnership (54)
Gain on business interruption claim -- -- 620
(Loss) income before income taxes $(472) $(3,821) $2,381
IDENTIFIABLE ASSETS
Manufactured housing $8,983 $8,019 $7,207
Recreational vehicles 11,368 13,118 17,932
Total assets $20,351 $21,137 $25,139
DEPRECIATION
Manufactured housing $289 $259 $234
Recreational vehicles 350 418 436
Total depreciation $639 $677 $670
CAPITAL EXPENDITURES
Manufactured housing $337 $872 $127
Recreational vehicles 443 97 307
Total capital expenditures $780 $969 $434
Operating (loss) income represents (loss) income before net interest income
(expense), equity in loss of retail sales partnership, gain on business
interruption claim and income taxes. Non-direct operating expenses are
allocated to industry segments based on a percentage of sales. Identifiable
assets, depreciation and capital expenditures are those items that are used
in the operations in each industry segment, with jointly used items being
allocated based on a percentage of sales.
</TABLE>
31
<PAGE>
<TABLE>
KIT Manufacturing Company
Selected Financial Data
<CAPTION>
October 31, 1998 1997 1996 1995 1994
(Dollars in thousands
except per share amounts)
FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Sales $61,030 $76,465 $97,158 $101,462 $87,722
Net (loss) income $(357) $(2,312) $1,431(1) $1,349(2) $1,891(3)
Cash dividends paid $ $ $ $ $
Capital expenditures $780 $969 $434 $1,251 $3,622
Depreciation $639 $677 $670 $597 $478
AT YEAR-END
Working capital $6,861 $7,215 $9,984 $8,427 $7,622
Current ratio 2.0:1 2.0:1 2.1:1 2.0:1 1.9:1
Ppty, plnt & equip, net $6,735 $6,844 $6,319 $6,388 $5,762
Total assets $20,351 $21,137 $25,139 $23,302 $21,891
Long-term obligations $ $ $ $ $
Shareholders' equity $12,268 $12,625 $14,937 $13,506 $12,157
PER SHARE
Basic net (loss) income $(0.32) $(2.08) $1.29(1) $1.21(2)$1.61(3)
Diluted net (loss) income $(0.32) $(2.08) $1.27(1) $1.21(2)$1.59(3)
Shareholders' equity $11.04 $11.36 $13.45 $12.16 $10.94
(1) Includes gain on a business interruption claim of $373,000, net of related income
taxes, or $0.34 per share.
(2) Includes gain on a business interruption claim of $423,000, net of related income
taxes, or $0.38 per share.
(3) Includes gain on involuntary conversion of plant facility and equipment and a
business interruption claim of $671,000, net of related income taxes, or $0.57
per share.
</TABLE>
32
<PAGE>
<TABLE>
KIT Manufacturing Company
Quarterly Statistics
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
Fiscal 1998 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Sales $13,819 $16,831 $15,328 $15,052
Gross profit 901 1,514 1,601 1,094
(Loss) income before income tax benefit (265) 90 116 (413)
Net (loss) income (157) 55 74 (329)
Basic and diluted net (loss) income per share ($0.14) $0.05 $0.07 ($0.30)
Fiscal 1997
<S> <C> <C> <C> <C>
Sales $16,589 $23,134 $20,811 $15,931
Gross profit 1,332 1,026 867 64
Loss before income taxes (546) (1,249) (741) (1,285)
Net loss (322) (737) (437) (816)
Basic and diluted net loss per share ($0.29) ($0.66) ($0.39) ($0.74)
</TABLE>
<TABLE>
<CAPTION>
Market Prices of Common Stock
Fiscal 1998 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
High 9 1/8 8 1/8 7 7/8 6 1/2
Low 6 3/8 6 3/4 6 1/4 4 5/8
Fiscal 1997
High 11 7/8 12 3/8 10 3/4 9 9/16
Low 11 10 1/2 9 1/2 8 1/8
KIT common stock is traded on the American Stock Exchange. The above table reflects
the high and low sales prices for each quarterly fiscal period in the past two years.
There are approximately 346 shareholders of record on January 8, 1999.
</TABLE>
33
<PAGE>
Corporate Information
Directors Stock Registrar and Transfer Agent
Dan Pocapalia ChaseMellon Shareholder Services, L.L.C.
Chairman of the Board, Ridgefield Park, New Jersey
President and Chief
Executive Officer of KIT
Fred W. Chel Legal Counsel
Business Consultant, O'Melveny & Myers
Custom Fibreglass Los Angeles, California
Manufacturing Company
Frank S. Chan, Jr.
Certified Public Accountant, Partner, Accountants
Frank S. Chan & Company PricewaterhouseCoopers LLP
Los Angeles, California
John W. H. Hinrichs
Senior Vice President & Cashier,
Farmers & Merchants Bank
of Long Beach Form 10-K
A copy of the Company's current annual
John F.Zaccaro report filed with the Securities and
Vice Chairman, Exchange Commission (SEC) on Form 10-K,
Empower Health Corporation exclusive of exhibits, will be furnished
to shareholders without charge upon
written request to Marlyce A. Faldetta,
Corporate Secretary, KIT Manufacturing
Officers Company, Post Office Box 848, Long Beach
Dan Pocapalia California 90801.
Chairman of the Board, President
and Chief Executive Officer
Executive Offices
Gerald R. Wannamaker KIT Manufacturing Company
Executive Vice President - Operations 530 East Wardlow Road, P.O. Box 848
Long Beach, California 90801
Bruce K. Skinner (562) 595-7451
Vice President and Treasurer
Matthew S. Pulizzi Annual Meeting of Shareholders
Vice President - Customer Relations Tuesday, March 9, 1999, 9:00 A.M.
Long Beach Marriott
Marlyce A. Faldetta 4700 Airport Plaza Drive
Corporate Secretary Long Beach, California
34
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC FORM 10K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 3,230,000
<SECURITIES> 0
<RECEIVABLES> 4,041,000
<ALLOWANCES> 37,000
<INVENTORY> 4,821,000
<CURRENT-ASSETS> 13,464,000
<PP&E> 12,691,000
<DEPRECIATION> 5,956,000
<TOTAL-ASSETS> 20,351,000
<CURRENT-LIABILITIES> 6,603,000
<BONDS> 0
0
0
<COMMON> 750,000
<OTHER-SE> 842,000
<TOTAL-LIABILITY-AND-EQUITY> 20,351,000
<SALES> 61,030,000
<TOTAL-REVENUES> 61,030,000
<CGS> 55,920,000
<TOTAL-COSTS> 61,503,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,000
<INCOME-PRETAX> (472,000)
<INCOME-TAX> (115,000)
<INCOME-CONTINUING> (357,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (357,000)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
