-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TOKwM085RWGxoY9+SNwS8VU9NZlWbzj92WjhkizREmWCy6NgTvgaardapDywmeeW XtFVb720WQSAuSPmY4cnzw== 0000056151-00-000003.txt : 20000203 0000056151-00-000003.hdr.sgml : 20000203 ACCESSION NUMBER: 0000056151-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIT MANUFACTURING CO CENTRAL INDEX KEY: 0000056151 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 951525261 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06257 FILM NUMBER: 517481 BUSINESS ADDRESS: STREET 1: 530 E WARDLOW RD STREET 2: P O BOX 848 CITY: LONG BEACH STATE: CA ZIP: 90801 BUSINESS PHONE: 3105957451 MAIL ADDRESS: STREET 1: 530 EAST WARDLOW ROAD CITY: LONG BEACH STATE: CA ZIP: 90801 10-K 1 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. 1 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% 2 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 3 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. 4 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. 5 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. 6 Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 7 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 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 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. 10 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. 11 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 12 KIT MANUFACTURING COMPANY SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS For The Years Ended October 31, 1999, 1998 And 1997
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: 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.
13 KIT MANUFACTURING COMPANY SCHEDULE IX SHORT-TERM BORROWINGS For The Years Ended October 31, 1999, 1998 and 1997
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) 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.
14 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) 15 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 16 (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. 17 (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 KIT Manufacturing Company Annual Report 1999 19 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 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.
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 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, 21 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 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 23 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 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 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 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 KIT Manufacturing Company Balance Sheets
October 31, 1999 1998 ASSETS Current Assets 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.
28 KIT Manufacturing Company Statements of Income
For the Years Ended October 31, 1999 1998 1997 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
Statements of Shareholders' Equity Common Stock Additional Retained Shares Amount Paid-In Capital Earnings Total 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.
29 KIT Manufacturing Company Statements of Cash Flows
For the Years Ended October 31, 1999 1998 1997 Cash Flows From Operating Activities: 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.
30 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 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 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.
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: 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
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 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.
6. Inventories Inventories are summarized as follows: October 31, 1999 1998 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.
34 KIT Manufacturing Company Notes to Financial Statements
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: Federal $26,000 $(58,000) $(1,263,000) State 5,000 (266,000) 31,000 (58,000) (1,529,000)
Deferred: 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)
The sources of deferred taxes were as follows: October 31, 1999 1998 1997 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
Reconciliation of the effective tax rates and the U.S. statutory tax rate is summarized as follows: October 31, 1999 1998 1997 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%)
35
The components of the deferred tax asset and liability are as follows : October 31, 1999 1998 Deferred tax asset: 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.
36 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.
October 31, 1999 1998 1997 (Dollars in thousands) 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
37 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 KIT Manufacturing Company Selected Financial Data
October 31, 1999 1998 1997 1996 1995 (Dollars in thousands except per share amounts) FISCAL YEAR 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.
39 KIT Manufacturing Company Quarterly Statistics (Dollars in thousands except per share amounts) (Unaudited)
Fiscal 1999 First Quarter Second Quarter Third Quarter Fourth Quarter 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 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)
Market Prices of Common Stock Fiscal 1999 First Quarter Second Quarter Third Quarter Fourth Quarter 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.
40 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 EX-27 2
5 This schedule contains summary financial information extracted from SEC FORM 10K and is qualified in its entirety by reference to such financial statements. 12-MOS OCT-31-1999 OCT-31-1999 4,731,000 0 4,947,000 35,000 2,454,000 13,122,000 13,037,000 6,488,000 19,761,000 5,646,000 0 0 0 750,000 842,000 19,761,000 63,251,000 63,251,000 56,744,000 62,581,000 0 0 107,000 572,000 199,000 373,000 0 0 0 373,000 0.34 0.34
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