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, 1999
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. [X]
The approximate aggregate market value of voting stock held
by non-affiliates of Registrant was $2,691,468 as of January 27, 2000.
1,110,934
(Number of shares of Common Stock outstanding as of January 22, 2000)
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, 1999 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,
1999.
The Index to Exhibits appears on page 16.
18 pages in total.
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PART I
Item 1. Business
Qualifying Statement With Respect To Forward-Looking Information
The United States Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for certain forward-looking
statements. Such forward-looking statements are based upon the current
expectations of the Company and speak only as of the date made. These
forward-looking statements involve risks, uncertainties and other factors.
The factors discussed below under in this Annual Report on Form 10-K are among
those factors that in some cases have affected the Company's historic results
and could cause actual results in the future to differ
significantly from the results anticipated in forward-looking
statements made in this Annual Report on Form 10K, future filings
by the Company with the Securities and Exchange Commission, in the
Company's press releases and in oral statements made by authorized
officers of the Company. When used in this Annual Report on Form
10-K, the words
"estimate," "project,""anticipate," "expect," "intend,"
"believe," "hope," "may," and similar expressions, as well as
"will," "shall" and other
indications of future tense, are intended to identify forward-
looking statements.
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 2 of Registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 1999, 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 and double 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
1997 31% 69%
1998 43% 57%
1999 49% 51%
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Item 1. Continued
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, 1999, which is incorporated
herein by reference.
Method of Product Distribution
Registrant sells its products to approximately 138
dealers in 23 states, 15 dealers in Canada, and 1 in Italy. 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 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 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
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Item 1. Continued
the above described cancellation provision, was $2,374,613 and
$3,830,356 at October 31, 1999 and 1998, respectively. All of the
backlog existing at October 31, 1999 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.
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 only and does not engage in new product
development.
Number of Employees
On October 31, 1999, Registrant had 621 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 1999, fifty-two 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.
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Item 1. Continued
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
1999. Also, KIT's 2000 recreational vehicles models have been
well received by the dealers and KIT is optimistic about the favorable
outcome of future operations of this segment.
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.
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Item 2. Properties
Registrant leases general executive and administrative
offices in Long Beach, California. The lease expires on May 14,
2001. At that date, Registrant has a five year renewal option.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, property leased to others, and property
for sale (all property is owned by Registrant unless otherwise
noted):
Approximate Approximate
Facility And Location Acres Square Feet
Recreational vehicle plants:
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 (2)
McPherson, Kansas 12.5 67,600 (2)
Chino, California 10.0 47,700 (3)
Manufactured housing plants:
Caldwell, Idaho 9.5 99,100 (4)
Caldwell, Idaho 2.1 13,200 (1)
(1)81,000 square foot Production Facility is being utilized by
recreational vehicles and by manufactured housing.
(2)This facility is no longer being utilized as a production
facility. As of year-end it was for sale or lease to a third party.
(3)Production Facility is no longer leased to a third party.
However, as of 10/31/99 the property was in escrow to be sold to a third
party.
(4)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.
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Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
7
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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, 1999,
at pages 2 and 15.
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, 1999,
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, 1999,
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, 1999, 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
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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.
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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, 1999 and 1998 6
Statements of Income for each of the three
years in the period ended October 31, 1999 7
Statements of Shareholders' Equity for each
of the three years in the period ended
October 31, 1999 7
Statements of Cash Flows for each of
the three years in the period ended
October 31, 1999 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, 1999 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, 1999 is not to be deemed filed as part of this
report.
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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, 1999
VIII Valuation and Qualifying
Accounts 13
IX Short-Term Borrowings 14
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, 1999.
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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 1999 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 10, 1999
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<TABLE>
KIT MANUFACTURING COMPANY
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended October 31, 1999, 1998 And 1997
<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
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1997 $43,000 - $1,000(A) $42,000
Year ended October 31, 1998 $42,000 - $5,000(A) $37,000
Year ended October 31, 1999 $37,000 - $2,000(A) $35,000
(A)Write-off of uncollectible accounts.
</TABLE>
13
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<TABLE>
KIT MANUFACTURING COMPANY
SCHEDULE IX SHORT-TERM BORROWINGS
For The Years Ended
October 31, 1999, 1998 and 1997
<CAPTION>
Col.A Col.B Col.C Col.D Col.E Col.F
Balance At Maximum Amount Weighted Average Weighted Average
Category Of Aggregate End Of Weighted Average Outstanding Outstanding Interest Rate
Borrowings Period Interest Rate During The Period(B) During The Period(C) During The Period(C)
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1997:
Unsecured revolving
credit agreement (A ) -0- * $5,500,000 $1,600,000 8.5%
Year ended October 31, 1998:
Unsecured revolving
credit agreement (A) -0- * $2,917,000 $1,395,000 8.5%
Year ended October 31, 1999:
Unsecured revolving
credit agreement (A) -0- * $2,901,000 $1,148,000 7.8%
(A)The Registrant 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 bank's prime rate and certain minimum
requirements as to the Registrant's working capital
and debt to equity relationships. The maximum
borrowing permitted is 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.
(B)Based on month-end balances.
(C)Based on the daily balances and interest rates
during the year.
*Not applicable.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused thisreport
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,
and Chief Executive Officer
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.27, 2000 /s/John W.H. Hinrichs Jan.27, 2000
Dan Pocapalia John W.H. Hinrichs
Chairman of the Board, Director
Chief Executive Officer
and President (Principal
Executive Officer)
/s/John F. Zaccaro Jan.27, 2000 /s/Frank S. Chan Jan.27, 2000
John F. Zaccaro Frank S. Chan
Director Director
/s/Bruce K. Skinner Jan.27, 2000 /s/Fred W. Chel Jan.27, 2000
Bruce K. Skinner Fred W. Chel
Vice President and Treasurer Director
(Principal Financial and
Accounting Officer)
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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
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(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.
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(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.
18
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KIT Manufacturing Company
Annual Report
1999
19
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<TABLE>
KIT Manufacturing Company
Financial Highlights
(Dollars in thousands except per share amounts)
1999 1998 1997 1996 1995
Operating Results for the
Year Ended October 31
<S> <C> <C> <C> <C> <C>
Sales $63,251 $61,030 $76,465 $97,158 $101,462
Net income (loss) 373 (357) (2,312) 1,431(1) 1,349(2)
Net income (loss) per share:
Basic $0.34 ($0.32) ($2.08) $1.29(1) $1.21(2)
Diluted $0.34 ($0.32) ($2.08) $1.27(1) $1.21(2)
Weighted-average shares outstanding:
Basic 1,110,934 1,110,934 1,110,934 1,110,934 1,110,934
Diluted 1,110,934 1,110,934 1,110,934 1,130,433 1,110,934
Working capital $7,476 $6,861 $7,215 $9,984 $8,427
(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.
</TABLE>
About the Company:
KIT Manufacturing Company produces manufactured
housing and recreational vehicles (towable trailers)
marketed by an independent dealer network in 23 states
in the West, Midwest, South and Southeast, and
Canada. 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.
20
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To Our Shareholders:
The improved operating results for the fiscal year ended October 31, 1999
signaled a significant turning point in the Company's efforts to realign its
offerings in the Recreational Vehicle Division in accordance with market
demands. In addition, as a result of management changes made during the
latter part of the fiscal year, the Company realized considerable improve-
ments in product development, marketing and production efficiencies.
During the fiscal year, the Recreational Vehicle Division re-
designed its product lines and introduced the new models on June 1, 1999.
The new lineup of travel trailers and fifth wheels has been well received by
the dealer body and the retail customer. As well as changes made to the RV
product, significant cost cutting measures were implemented in the RV div-
ision. Both of these forward looking actions will position the RV segment
of our business to be extremely competitive and more responsive to the needs
of the marketplace.
The National RV show in Louisville, Kentucky held during the latter
part of 1999 provided management with a realistic and encouraging view of what
lies ahead for fiscal 2000. The dealer body agreed that the improvements and
enhancements made to the RV lines have made the product more exciting and
present an attractive business opportunity to potential and existing dealers.
Management is confident that our commitment to the manufacture of superior
quality, high-value RVs will continue to reward the Company through con-
tinued market expansion in meeting the demands of this highly competitive
business.
The Manufactured Housing Division sales dollars increased 18%,
from $26.4 million in fiscal 1998 to $31.1 million in fiscal 1999.
Homes sold increased 10% over fiscal 1998 from 780 to 858 homes in
fiscal 1999. This growth was accomplished despite the fact that overall
industry sales were down nearly 5% from 1998. The overall industry
sales decline was the result of several vertically integrated companies
saturating the market with homes as well as significant growth in the
number of manufactured housing retail sales lots.
The Manufactured Housing Division continued its participation in
the retail sales partnership located in Nampa, Idaho during fiscal 1999.
Because of the success of the Nampa operation, the division entered into
participation in a second retail sales store in Fruitland, Idaho. These KIT
Courtyard ventures have had a positive impact on the operations of KIT from
the standpoint of increased home sales as well as an increased knowledge of
the inner workings of real estate sales techniques. Because of the favorable
results of the KIT Courtyard marketing concept, a number of existing KIT
dealers have asked for, and are being set up as, exclusive KIT Courtyard
dealerships.
In fiscal 1998, the Manufactured Housing Division increased its
production capacity by 40%. During fiscal 1999, the division completed
a second expansion of the plant facility, making it one of the most
efficient producers of manufactured housing in the Northwest. The Company is
now planning a third expansion in the form of an on-site chassis plant to
further improve production capabilities and efficiency.
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,
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rose 9% to $7.5 million and is more than sufficient to provide the Company
with funds necessary for operational maintenance and growth.
We anticipate that the first six months of fiscal 2000 will be a difficult
time for the manufactured housing industry as a whole, as some
companies will be liquidating product on the market in order to bring their
inventories of unsold homes in line with market needs. Management anticipates
that we should continue to outperform the industry, but because we will need
to compete with discount pricing from our competitors, our profits will be
affected, to some extent, to match their incentive programs.
Looking forward to fiscal 2000 with respect to the recreational
vehicle industry, it appears that the economy will continue
to provide a favorable business environment in which to expand. Also, the
Company expects to benefit from the growth in the Baby Boom Generation,
which is continuing to move into the prime RV buying ages of 50 to 74.
First quarter operations will see our normal seasonal slowdown in RV sales,
however, management believes that the demographic and economic factors noted
above should help give rise to a much improved profit for fiscal 2000.
Sincerely,
/s/Dan Pocapalia
Dan Pocapalia
Chairman and Chief Executive Officer
22
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Recreational Vehicles
Having consistently produced and delivered high quality, high value
products to our customers for 55 years, KIT remains one of the major
manufacturers of towable travel trailers and fifth-wheels in the United
States. KIT products are well known for their reliability and their retained
value at "trade-in" time. KIT RVs are in high demand for the second time,
entry-level buyer as well as the more knowledgeable buyer.
Over the past few years, the baby-boomer generation and younger families
have begun discovering the affordability and comfort of recreational vehicle
travel. The Company's philosophy of uncompromising quality control standards
along with a value-driven price tag has carried KIT to new heights in
retail customer loyalty from the oldest to the newest members of the RV
life-style.
KIT's RV products incorporate high quality, reliable name-brand
appliances, along with stylish interior components and accessories. With the
onset of model year 2000, the Company has introduced new models in addition
to new innovations in our existing model lineup in response to our customers'
demands.
KIT produces a wide range of recreational vehicle products in its
manufacturing facilities in Caldwell, Idaho under the brand names of Espre,
Road Ranger, Sunchaser, Companion, Millennium, and Patio Hauler. KIT RV's
measure from 19 to 39 feet in length, are more than eight feet wide and
provide sleeping accommodations for 2 to 10 persons.
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 fifteen different floor plan
models, are positioned for the mid-priced market. These models are configured
with a wide range of features and now include an LXG Plus lineup of trailers
which consists of four 32' and above floor plans.
In a positive move to position its products through all price points of
the RV market, KIT recently began offering the all-new Millennium as our
high-end product offering. This line, which consists of three different
models, provides the largest living and storage areas and feature benefits in
their price range. This new product appeals to the discerning buyer and
full-time RVers with a vast selection of features as standard equipment.
Designed for adventure, the Company's unique 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.
In addition to its current model lineup, KIT will begin offering several
new options to the trailer and fifth-wheel market, including two cargo-style
travel trailers, and three different `Lite' models. These new units will be
available sometime during the spring selling season of 2000.
Retail prices for the more than 50 KIT floor plans range from $8,500 to
$58,000. This range covers approximately 80 percent of the travel trailer and
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fifth-wheel market.
More than 117 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.
Manufactured Housing
The Manufactured Housing Division's sales 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 homes 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 construction methods, 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 49 dealers
located in 8 Western states.
KIT's homes are marketed in five product lines. Our Cypress homes offer
the budget conscious entry level buyer an ideal way to purchase their first
home. 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 style 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 42 available floor
plans range from about 800 to more than 2,500 square feet. Retail prices,
exclusive of land costs, range from approximately $25,000 to $120,000.
In fiscal 1999, KIT homes enjoyed a greater share of the single family home
subdivision sites. With our 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.
24
<PAGE>
KIT Manufacturing Company
Management's Discussion And Analysis of Results of Operations and
Financial Condition
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Sales rose by 4% to $63.3 million compared to fiscal 1998 when
sales were $61.0 million. Net income was $373,000, or $0.34 per share,
in comparison to a net loss in fiscal 1998 of $357,000, or $0.32
per share. Net income was primarily from improved operations
in the Manufactured Housing Division. Operational profits
in the Manufactured Housing Division were primarily the result of a
significant increase in sales due to the increasing retail demand for KIT
manufactured homes.
Recreational Vehicle Division sales decreased 7% to $32.2 million
from sales of $34.6 million in 1998. The overall decrease in RV
shipments was 9%, down from 2,511 units in 1998 to 2,293 units in 1999. The
primary reason for the sales dollar and unit decline was the closure in
fiscal 1998 of the RV plant in McPherson, Kansas. This decline consisted of a
decrease in fifth-wheel model shipments from 1,056 units in 1998 to 788 units
in 1999 and travel trailer shipments of 1,505 units, up from 1,455 units
shipped in 1998. The model mix tended toward lower priced units in fiscal
1999. Because of the results of operations during fiscal 1998, the Company
made key management changes and realigned the RV operations to be more
competitive in fiscal 1999. Based on these changes, during fiscal 1999, the
RV division improved its operating results by 29%. Management believes that
this division is fully prepared to achieve profitable operating results in
fiscal 2000.
Manufactured housing sales increased 18% to $31.1 million from sales of
$26.4 million in 1998. This increase reflected an 18% decline in shipments
of single-section homes from 103 units in 1998 to 84 units in 1999 and a
14% increase in shipments of multi-section homes from 677 units in 1998 to 774
units in 1999. Total unit shipments increased 10% from 780 homes in 1998 to
858 homes in 1999. The Manufactured Housing Division implemented modest
price increases in 1999 and 1998 to counter increases in raw material costs.
Gross profit as a percent of sales increased to 10% in comparison to 8% in
1998. The primary reasons for the increase were an increase in operating
efficiencies in both divisions, overhead cost reductions in the RV
division and increase sales volume in manufactured housing.
Selling, general and administrative expenses remained at 9% of sales in
comparison to fiscal 1998. 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 $58,000 in 1999, as compared to net interest income
of $55,000 in 1998, was the result of higher average cash investments and
lower average borrowings in fiscal 1999 as compared to fiscal 1998.
Fiscal 1998 compared to Fiscal 1997
Sales declined 20% to $61.0 million compared to $76.5 million in fiscal
1997. The net loss was $357,000, or $0.32 per share, in comparison
25
<PAGE>
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. 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
down from $52.7 million in 1997. The overall decrease in RV shipments
was 30%, down from 3,582 units in 1997 to 2,511 units in 1998. This decline
consisted of a decrease in fifth-wheel model shipments from 1,774 units in
1997 to 1,056 units in 1998 and travel trailer shipments of 1,455
units, down from 1,808 units shipped in 1997. The model mix moved toward
lower priced units in fiscal 1998.
Manufactured housing sales increased 11% to $26.4 million, up from sales
of $23.8 million in 1997. This increase reflected a 6% rise in shipments
of single-section homes from 97 units in 1997 to 103 units in 1998 and a 20%
increase in shipments of multi-section homes from 563 units in 1997 to 677
units in 1998. Total unit shipments increased 18% from 660 homes in 1998 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 the Manufactured
Housing Division.
Selling, general and administrative expenses remained at 9% of sales in
comparison to fiscal 1997. 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 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 compared to 1997.
Liquidity and Capital Resources
The financial position of the Company remains strong. The current ratio at
fiscal year-end 1999 rose to 2.3 in comparison to 2.0 at the end of fiscal
1998. The current ratio is the result of dividing current assets by current
liabilities. It is a financial measure that indicates the ability of the
Company to pay its current obligations with its current assets. The
improvement in the current ratio comes about as a result of a decline in
inventories, resulting in cash and cash investments and accounts receivable
to increase and current liabilities to decline.
In addition to funding general working capital requirements with available
funds, the Company, through financing activities, funds seasonal working
capital needs with respect to the build-up of inventories from periodic
borrowings on its revolving line of credit. In addition, funding for the
retail sales partnership's operations and plant expansion is expected to
come primarily from cash provided by operating activities. 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 1999 or 1998.
The Company believes that available funds, supplemented as needed with
26
<PAGE>
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
Year 2000 Compliance Program
The Company instituted a program to determine whether its computer
information systems were able to interpret dates beyond the year 1999 (the
"Year 2000 Compliance Program") and implemented programming
modifications to its main operational and financial reporting systems
address these issues. All modified programming is currently operational.
The Company also evaluated non-information technology
systems, which included telephone equipment, time-keeping equipment and
surveillance equipment. The Company believes that its present computer
information systems software and hardware and non-informational technology
systems are Year 2000 compliant and intends to obtain certification of such
for any purchases made in the future. The Company also contacted its major
suppliers, service vendors and customers regarding Year 2000 compliance and to
date, has not been alerted to any Year 2000 compliant issues as a result
of these inquiries. The total cost of the Year 2000 Compliance Program was
approximately $50,000.
Although management believes the Company adequately addressed Year
2000 compliance issues, there can be no assurance that such problems will not
be identified in the future. However, the Company believes that it has
sufficient resources and that any such problems subsequently identified will
not be material to the Company's financial position or results of operations.
Common Stock Buyback Program
In September 1999, the Company approved the repurchase of up to 100,000 shares
of the Company's common stock on the open market during a period of not more
than 12 months. The 100,000 common shares authorized for repurchase represent
9% of the outstanding common stock of the Company. The Company's management
believes the shares, from time to time, are undervalued by the market and
open market purchases should have the effect of enhancing the potential for
earnings growth on a per share basis and thus, enhancing the Company's value
to shareholders.
27
<PAGE>
<TABLE>
KIT Manufacturing Company
Balance Sheets
<CAPTION>
October 31, 1999 1998
ASSETS
Current Assets
<S> <C> <C>
Cash and cash investments $4,731,000 $3,230,00
Accounts receivable, net of allowance for doubtful
accounts of $35,000 in 1999 and $37,000 in 1998 4,947,000 4,041,000
Inventories 2,454,000 4,821,000
Prepaids and other assets 269,000 477,000
Deferred income taxes 721,000 895,000
Total Current Assets 13,122,000 13,464,000
Property, Plant and Equipment, at cost
Land 745,000 492,000
Buildings and improvements 8,281,000 7,931,000
Machinery and equipment 3,939,000 3,866,000
Construction in progress 72,000 402,000
13,037,000 12,691,000
Less accumulated depreciation (6,488,000) (5,956,000)
6,549,000 6,735,000
Other assets 90,000 152,000
$19,761,000 $20,351,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,538,000 $2,688,000
Accrued payroll and payroll related liabilities 1,191,000 1,587,000
Accrued marketing programs 402,000 718,000
Accrued expenses 1,515,000 1,610,000
Total Current Liabilities 5,646,000 6,603,000
Deferred income taxes 1,474,000 1,480,000
7,120,000 8,083,000
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
1999 and 1998 750,000 750,000
Additional paid-in capital 842,000 842,000
Retained earnings 11,049,000 10,676,000
Total Shareholders' Equity 12,641,000 12,268,000
$19,761,000 $20,351,000
The accompanying notes are an integral part of these financial statements.
</TABLE> 28
<PAGE>
<TABLE>
KIT Manufacturing Company
Statements of Income
<CAPTION>
For the Years Ended October 31, 1999 1998 1997
<S> <C> <C> <C>
Sales $63,251,000 $61,030,000 $76,465,000
Costs and expenses
Cost of sales 56,744,000 55,920,000 73,176,000
Selling, general and admin. expenses 5,837,000 5,583,000 7,074,000
62,581,000 61,503,000 80,250,000
Operating income (loss) 670,000 (473,000) (3,785,000)
Other income (expense)
Interest income 165,000 166,000 105,000
Interest expense (107,000) (111,000) (141,000)
Equity in loss of retail sales partnership (156,000) (54,000)
Income (loss) before income taxes 572,000 (472,000) (3,821,000)
Provision (benefit) for income taxes 199,000 (115,000) (1,509,000)
Net income (loss) $ 373,000 $ (357,000) $(2,312,000)
Net income (loss) per share:
Basic $0.34 ($0.32) ($2.08)
Diluted $0.34 ($0.32) ($2.08)
Weighted-average shares outstanding:
Basic 1,110,934 1,110,934 1,110,934
Diluted 1,110,934 1,110,934 1,110,934
</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, 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
Net income 373,000 373,000
Balance, October 31, 1999 1,110,934 $750,000 $842,00 $11,049,000 $12,641,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
29
<PAGE>
<TABLE>
KIT Manufacturing Company
Statements of Cash Flows
<CAPTION>
For the Years Ended October 31, 1999 1998 1997
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Cash received from customers $62,344,000 $61,523,000 $80,030,000
Interest received 165,000 166,000 105,000
Income taxes received 107,000 1,263,000 47,000
Cash paid to suppliers and employees (60,505,000) (62,614,000) (77,447,000)
Interest paid (107,000) (111,000) 141,000)
Net cash provided by operating activities 2,004,000 227,000 2,594,000
Cash Flows From Investing Activities:
Purchase of property, plant and
equipment (455,000) (578,000) (1,227,000)
Proceeds from disposals of property,
plant and dquipment 32,000 48,000 25,000
Investment in retail sales partnership (80,000) (140,000) -
Net cash used in investing activities (503,000) (670,000) (1,202,000)
Cash Flows From Financing Activities:
Proceeds from line-of-credit borrowings 14,693,000 17,790,000 12,374,000
Principal payments on line-of-credit
borrowings (14,693,000) (17,790,000) (12,374,000)
Net cash used in financing activities -- -- --
Net increase (decrease)in cash 1,501,000 (443,000) 1,392,000
Cash and cash investments at beginning
of year 3,230,000 3,673,000 2,281,000
--------- ---------
Cash and cash investments at end of year $4,731,000 $3,230,000 $3,673,000
========= =========
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities:
Net income (loss) $373,000 $(357,000) $(2,312,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 609,000 639,000 677,000
Deferred income taxes 168,000 (57,000) 20,000
Equity in loss of retail sales partnershp 156,000 54,000 -
Changes in operating assets and liabilities:
Accounts receivable (906,000) 492,000 3,493,000
Inventories 2,367,000 (1,419,000) 3,767,000
Prepaids and other assets 103,000 92,000 139,000
Accounts payable and accruals (957,000) (422,000) (1,708,000)
Accrued income taxes 91,000 1,205,000 (1,482,000)
Net cash provided by operating
activities $2,004,000 $227,000 $2,594,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
30
<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.
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.
Property, Plant and Equipment
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.
Assessments whether there has been a permanent impairment in the value of
property, plant and equipment are periodically performed by considering factors
such as expected future operating income, trends and prospects, as well as
the effects of demand, competition and other economic factors. Management
believes no permanent impairment has occurred.
The Company maintains property, plant and equipment that is held for sale
and not currently being used in the business with a net book value of$693,000.
This property, plant and equipment relates primarily to the idle manufacturing
facility in McPherson, Kansas.
Business Segments
For the year ended October 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
("SFAS No.131"). This statement supersedes Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a BusinessEnterprise,
and changes how segments are defined for disclosure purposes to
reflect the way internal information is used by management to make operating
decisions and assess performance of the enterprise's reportable segments.
The adoption of SFAS No. 131 did not affect the results of operations
or financial position but does affect the disclosure of segment information.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS No. 109"), which requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
31
<PAGE>
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
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 shares
outstanding plus potential common shares arising out of stock options issued
in 1994, unless the inclusion of such options would result in antidilution.
The Company's loss and 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
per share amounts for the years ended October 31, 1999, 1998 and 1997 because
the effect would have been antidilutive.
Insurance
The Company is self-insured for workers' compensation for its plant
locations, officers' and directors' liability, and product liability. The
Company has recognized an estimated potential liability for incurred but not
reported claims.
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 No. 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.
Investments
The Company maintains a 70% interest in Housing Solutions LLC (the "retail
sales partnership") whose principal business is selling manufactured homes to
private individuals through retail dealerships. The Company's relationship with
each respective retail dealership is governed by 5 year operating agreements
that provide few protective and no participating rights to the Company. As
such, the Company's investment in the retail sales partnership is accounted for
under the equity method of accounting.
Comprehensive Income
During the year ended October 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("SFAS No. 130"). The standard establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements.
32
<PAGE>
Comprehensive income generally represents all changes in shareholders' equity,
except those resulting from investments by or distributions to shareholders.
The Company has no items of other comprehensive income for the years ended
October 31, 1999, 1998 and 1997.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified
to conform to the current year's presentation.
<TABLE>
<CAPTION>
2. Investments
The Company's investment in and advances to the retail sales partnership as
of October 31, 1999 and 1998 are $10,000 and $86,000, respectively, and are
included as a component of other assets. The condensed unaudited financial
information of the partnership for the years ended October 31, 1999 and 1998
is as follows:
1999 1998
Condensed Statement of Income Information:
<S> <C> <C>
Sales $3,912,000 $77,000
Costs and expenses 4,135,000 154,000
Net loss $(223,000) $(77,000)
Condensed Balance Sheet Information:
Assets $2,573,000 $1,028,000
Liabilities $2,673,000 $905,000
Partners' equity (deficit) (100,000) 123,000
$2,573,000 $1,028,000
</TABLE>
3. Shareholders' Equity
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 remain outstanding
(subject to termination of employment, death or permanent disability
of the holder, as set forth in the option agreements) for a period of 7 years
from the date of grant. The option to purchase the 35,056 additional shares of
the Company's common stock expired unused in June 1999. On October
31, 1999, 1998 and 1997, total unexercised options were 96,944, 132,000 and
132,000,of which 96,944, 132,000 and 99,000 options, respectively, were
exercisable.
33
<PAGE>
On September 14, 1999, the Board of Directors authorized the Company to
repurchase up to 100,000 common shares on the open market during a period
of not more than 12 months. The 100,000 common shares authorized for
repurchase represent 9% of the outstanding common stock of the Company. The
Company plans to purchase the shares from time to time, depending on market
conditions.
4. Bank Credit Line
The Company is party to a 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, 1999, 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 1999, 1998 and 1997 were $107,000, $111,000
and $141,000, respectively.
5. Commitments and Contingencies
The Company was contingently liable at October 31, 1999 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, 1999 and 1998 was approximately $10,184,000 and
$9,826,000, respectively.
In addition, the Company is contingently liable to financial institutions
for standby letters of credit totaling $305,000 and $778,000 as of October 31,
1999 and 1998, respectively. These letters of credit were established
to satisfy the self-insured workers' compensation regulations of the states
in which the Company conducted manufacturing operations.
Management does not expect that losses, if any, from the contingencies
described above will be of material importance to the results of operations
or financial position of the Company.
<TABLE>
<CAPTION>
6. Inventories
Inventories are summarized as follows:
October 31, 1999 1998
<S> <C> <C>
Raw material $1,792,000 $1,758,000
Work in process 654,000 685,000
Finished goods 8,000 2,378,000
$2,454,000 $4,821,000
The excess of current replacement cost over last-in, first-out cost was
$730,000 at October 31, 1999 and $1,310,000 at October 31, 1998.
</TABLE>
34
<PAGE>
KIT Manufacturing Company
Notes to Financial Statements
<TABLE>
<CAPTION>
7. Income Taxes
The components of the provision (benefit) for income taxes are as
follows:
For the year ended October 31, 1999 1998 1997
Current:
<S> <C> <C> <C>
Federal $26,000 $(58,000) $(1,263,000)
State 5,000 (266,000)
31,000 (58,000) (1,529,000)
</TABLE>
<TABLE>
<CAPTION>
Deferred:
<S> <C> <C> <C>
Federal 125,000 (46,000) 54,000
State 43,000 (11,000) (34,000)
168,000 (57,000) 20,000
$ 199,000 $(115,000) $(1,509,000)
</TABLE>
<TABLE>
<CAPTION>
The sources of deferred taxes were as follows:
October 31, 1999 1998 1997
<S> <C> <C> <C>
Accrued warranty costs $68,000 $197,000 $(160,000)
Workers' compensation reserves 78,000 76,000 (60,000)
State income and franchise taxes (11,000) (102,000) 167,000
Inventory cost capitalization 77,000 (44,000) 105,000
Sales to retail sales partnership (63,000) (37,000)
Net operating loss carryforwards 19,000 (55,000)
Other (92,000) (32,000)
$168,000 $(57,000) $20,000
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of the effective tax rates and the U.S. statutory tax
rate is summarized as follows:
October 31, 1999 1998 1997
<S> <C> <C> <C>
Statutory tax rate 34.0% (34.0%) 34.0%
State tax provision, net of federal tax effect 5.5 (1.5) (1.8)
Tax exempt interest (7.2) (8.3) (0.2)
Adjustment of prior years income tax accruals 16.9
Other 2.5 2.5 (3.5)
Federal tax rate 34.8% (24.4%) (39.5%)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
The components of the deferred tax asset and liability are as follows :
October 31, 1999 1998
Deferred tax asset:
<S> <C> <C>
Allowance for doubtful accounts $15,000 $20,000
Inventory cost capitalization 77,000
Sales to retail sales partnership 100,000 37,000
Accrued warranty costs 194,000 262,000
Workers' compensation reserves 193,000 271,000
State income and franchise taxes 43,000 32,000
Net operating loss carryforwards 165,000 184,000
Other 11,000 12,000
$721,000 $895,000
Deferred tax liability:
Accelerated depreciation $379,000 $385,000
Involuntary conversion of plant
facility and equipment 1,095,000 1,095,000
$1,474,000 $1,480,000
The Company's state net operating loss carryforwards begin to expire in
2002.
</TABLE>
36
<PAGE>
KIT Manufacturing Company
8. Segment Information
The Company designs, manufactures and sells manufactured housing, which are
relocatable, factory-built dwellings of single and multi-unit design. The
Company also produces recreational vehicles designed as short-period
accommodations for vacationers and truckers. As such, the Company's reportable
segments are based on product lines. The accounting
policies of the reportable segments are the same as those described in Note 1
of the Notes to Financial Statements. The Company evaluates the performance
of its operating segments based on operating income or losses. Each
segment records expenses related and allocable to its employees and its
operations. The Company does not allocate income taxes, interest income,
interest expense or equity in the retail sales partnership to
operating segments. Identifiable assets are primarily those directly used in
the operations of each segment. No individual customer accounted for greater
than 10% of net sales or accounts receivable for any year or year-end
presented.
<TABLE>
<CAPTION>
October 31, 1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
SALES
Manufactured housing $31,088 $26,410 $23,807
Recreational vehicles 32,163 34,620 52,658
Total sales $63,251 $61,030 $76,465
INCOME (LOSS) BEFORE INCOME TAXES
Operating income (loss)
Manufactured housing $2,445 $2,021 $876
Recreational vehicles (1,775) (2,494) (4,661)
Total operating income (loss) 670 (473) (3,785)
Interest income 165 166 105
Interest expense (107) (111) (141)
Equity in loss of retail sales partnership (156) (54)
(Loss) income before income taxes $572 $(472) $(3,821)
IDENTIFIABLE ASSETS
Manufactured housing $9,916 $8,983 $8,019
Recreational vehicles 9,845 11,368 13,118
Total assets $19,761 $20,351 $21,137
DEPRECIATION
Manufactured housing $308 $289 $259
Recreational vehicles 301 350 418
Total depreciation $609 $639 $677
</TABLE>
37
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
KIT Manufacturing Company
In our opinion, the accompanying balance sheets and the related statements of
income, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of KIT Manufacturing Company at October 31,
1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended October 31, 1999 in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards, which 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,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
December 10, 1999
38
<PAGE>
<TABLE>
KIT Manufacturing Company
Selected Financial Data
<CAPTION>
October 31, 1999 1998 1997 1996 1995
(Dollars in thousands
except per share amounts)
FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Sales $63,251 $61,030 $76,465 $97,158 $101,462
Net income (loss) $373 $(357) $(2,312) $1,431(1) $1,349(2)
Cash dividends paid $ 0 $ 0 $ 0 $ 0 $ 0
Capital expenditures $455 $578 $1,227 $434 $1,251
Depreciation $609 $639 $677 $670 $597
AT YEAR-END
Working capital $7,476 $6,861 $7,215 $9,984 $8,427
Current ratio 2.3:1 2.0:1 2.0:1 2.1:1 2.0:1
Ppty, plnt & equip, net $6,549 $6,735 $6,844 $6,319 $6,388
Total assets $19,761 $20,351 $21,137 $25,139 $23,302
Long-term obligations $0 $0 $0 $0 $0
Shareholders' equity $12,641 $12,268 $12,625 $14,937 $13,506
PER SHARE
Basic net income (loss) $.34 $(0.32) $(2.08) $1.29(1) $1.21(2)
Diluted net income (loss) $.34 $(0.32) $(2.08) $1.27(1) $1.21(2)
Shareholders' equity $11.38 $11.04 $11.36 $13.45 $12.16
(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.
</TABLE>
39
<PAGE>
<TABLE>
KIT Manufacturing Company
Quarterly Statistics
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
Fiscal 1999 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Sales $12,644 $16,184 $16,411 $18,012
Gross profit 1,350 1,711 1,942 1,504
Income (loss) before income taxes 188 225 282 (123)
Net income (loss) 127 150 112 (16)
Basic and diluted net income (loss)
per share $0.11 $0.14 $0.10 ($0.01)
Fiscal 1998
<S> <C> <C> <C> <C>
Sales $13,819 $16,831 $15,328 $15,052
Gross profit 901 1,514 1,601 1,094
Income (loss) before income taxes (265) 90 116 (413)
Net income (loss) (157) 55 74 329
Basic and diluted net income (loss)
per share ($0.14) $0.05 $0.07 ($0.30)
</TABLE>
<TABLE>
<CAPTION>
Market Prices of Common Stock
Fiscal 1999 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
High 6 1/8 6 7/8 7 1/2 7
Low 4 5/8 5 1/2 5 7/8 3 7/8
Dividends 0 0 0 0
Fiscal 1998
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
Dividends 0 0 0 0
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 7, 2000.
</TABLE>
40
<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
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 and Founder Exchange Commission (SEC) on Form 10-K,
drkoop.com, Inc. exclusive of exhibits, will be furnish-
ed to shareholders without charge upon
written request to Marlyce A. Faldetta,
Corporate Secretary, KIT Manufacturing
Officers Company, Post Office Box 848, Long
Dan Pocapalia Beach, California 90801.
Chairman of the Board
and Chief Executive Officer
Executive Offices
Harold D. Breach KIT Manufacturing Company
President and General Manager 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 14, 2000, 9:00 A.M.
Long Beach Marriott
Marlyce A. Faldetta 4700 Airport Plaza Drive
Corporate Secretary Long Beach, California
41
<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-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 4,731,000
<SECURITIES> 0
<RECEIVABLES> 4,947,000
<ALLOWANCES> 35,000
<INVENTORY> 2,454,000
<CURRENT-ASSETS> 13,122,000
<PP&E> 13,037,000
<DEPRECIATION> 6,488,000
<TOTAL-ASSETS> 19,761,000
<CURRENT-LIABILITIES> 5,646,000
<BONDS> 0
0
0
<COMMON> 750,000
<OTHER-SE> 842,000
<TOTAL-LIABILITY-AND-EQUITY> 19,761,000
<SALES> 63,251,000
<TOTAL-REVENUES> 63,251,000
<CGS> 56,744,000
<TOTAL-COSTS> 62,581,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,000
<INCOME-PRETAX> 572,000
<INCOME-TAX> 199,000
<INCOME-CONTINUING> 373,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373,000
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
</TABLE>
