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, 2000
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 $1,745,784 as of January 26, 2001.
1,027,334
(Number of shares of Common Stock outstanding as of January 26, 2001)
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, 2000 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, 2000.
The Index to Exhibits appears on page 16.
18 pages in total.
1
PART I
Item 1. Business
Introductory Note Regarding Forward Looking Statements
This Annual Report on Form 10-K contains statements which, to the extent they
do not recite historical fact, may constitute "forward-looking statements,"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. You can
identify these statements by the use of words such as "may," "will," "could,"
"should," "project," "believe," "anticipate," "expect," "plan," "estimate,"
"forecast," "potential," "intend," "continue," and variations of these words
or comparable words. Forward-looking statements do not guarantee future
performance and involve risks and uncertainties. Actual results may differ
substantially from the results that the forward-looking statements suggest
for various reasons, including those discussed under the caption "Business"
in
Item 1 of this Report on Form 10-K and in the Registrant's Annual Report to
Shareholders for the fiscal year ended October 31, 2000. These forward
looking
statements are made only as of the date of this Report. The Registrant does
not undertake to update or revise the forward-looking statements, whether as
a result of new information, future events or otherwise.
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, 2000, 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 multi-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
1998 43% 57%
1999 49% 51%
2000 45% 55%
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, 2000, which is incorporated herein
by reference.
Method of Product Distribution
Registrant sells its products to approximately 122 dealers in 23
states, and 12 dealers in Canada. Exclusive dealerships are not
the pattern of the industry, and virtually all dealers also sell competing
products. Registrant generally produces manufactured housing products
only against orders received from dealers. Recreational vehicles are
built for inventory particularly during the winter months in anticipation of
increased demand during the spring months. (See "Seasonal Considerations"
below.) A significant portion of the cost of Registrant's products is
attributable to charges incurred in their distribution. Specifically,
distribution charges are the function of several factors including the
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 many 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 $1,227,911 and
$2,374,613 at October 31, 2000 and 1999, respectively. All of the
backlog existing at October 31, 2000 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, 2000, Registrant had 450 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 2000, fifty-nine 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 currently 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. Tightened consumer credit
and the tenuous economy have unfavorably affected dealers and retail
purchasers of Registrant's manufactured housing products in fiscal
2000. Although KIT's 2001 recreational vehicles models have been well
received by the dealers, higher interest rates and gasoline prices have
recently depressed the retail market.
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. 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, (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
Manufactured housing plants:
Caldwell, Idaho 9.5 99,100 (2)
Caldwell, Idaho 2.1 13,200 (1)
Retail sales partnership location:
Fruitland, Idaho 1.5 1,780
(1)81,000 square foot Production Facility is being utilized for both a
recreational vehicles plant and a manufactured housing plant.
(2)In 1997, 6,600 square foot storage area was added and a 28,500
square foot building addition was also added to the existing
64,000 square foot Production Facility.
6
Item 3. Legal Proceedings
In the ordinary course of business, Registrant is subject to occasional
lawsuits, investigations and claims. Although Registrant cannot predict the
ultimate resolution of lawsuits, investigations and claims asserted against
it, Registrant does not believe that any currently pending legal proceeding
to which it is a party will have a material adverse effect on its business,
results of operations or financial condition.
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, 2000,
at pages 2 and 15.
DIVIDEND POLICY
KIT has a recent history of not paying cash dividends on its common
stock. KIT currently anticipates retaining future earnings, if any,
for general working capital purposes. Payment of dividends in the
future, if at all, will depend upon KIT's earnings and financial
condition and various other factors our directors may deem appropriate
at the time.
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, 2000,
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, 2000,
at pages 4 and 5.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Registrant does not utilize interest rate swaps, forward or option
contracts on foreign currencies or commodities, or other types of
derivative financial instruments. Registrant's only assets or
liabilities that are subject to risks from interest rate changes is
the Registrant's bank credit line. Registrant's bank credit line
incurs interest at the lesser of the bank's prime rate or market rate.
Registrant does not believe that it is subject to material risks from
reasonably possible near-term changes in market interest rates.
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, 2000, at pages 6 through 11 and pages
13 through 15.
8
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
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, 2000 and
1999 6
Statements of Income for each of the three
years in the period ended October 31, 2000 7
Statements of Shareholders' Equity for each
of the three years in the period ended
October 31, 2000 7
Statements of Cash Flows for each of
the three years in the period ended
October 31, 2000 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, 2000, 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, 2000 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, 2000
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.
1. Incentive Bonus Plan.
2. Indemnification Agreement
3. Schedule of Indemnification Agreements
(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, 2000.
11
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULES
To the Shareholders and Board of Directors
of KIT Manufacturing Company
Our audits of the financial statements referred to in our report
dated December 11, 2000, appearing in the 2000 Annual Report to Shareholders
of KIT Manufacturing Company (which report and financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included
an audit of financial statement schedules listed in Item 14(a)(2)
of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein
when read in conjunction with the related financial statements.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
December 11, 2000
12
KIT MANUFACTURING COMPANY
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended October 31, 2000, 1999 And 1998
Col. A Col. B Col. C Col. D
Col.
E Col. F
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, 1998 $42,000 -
$5,000(A) $37,000
Year ended October 31, 1999 $37,000 -
$2,000(A) $35,000
Year ended October 31, 2000 $35,000
$6,000(A) $29,000
(A)Write-off of uncollectible accounts.
13
KIT MANUFACTURING COMPANY
SCHEDULE IX
SHORT-TERM BORROWINGS
For The Years Ended October 31, 2000, 1999 and 1998
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, 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%
Year ended October 31, 2000:
Unsecured revolving
credit agreement (A) -0- * $3,117,000
$2,009,000 9.2%
(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 $4,500,000 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 this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KIT Manufacturing Company
By:/s/Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
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 Feb. 13, 2001 /s/John W.H. Hinrichs Feb. 13, 2001
Dan Pocapalia John W.H. Hinrichs
Chairman of the Board, Director
Chief Executive Officer
and President (Principal
Executive Officer)
/s/John F. Zaccaro Feb. 13, 2001 /s/Frank S. Chan Feb. 13, 2001
John F. Zaccaro Frank S. Chan
Director Director
/s/Bruce K. Skinner Feb. 13, 2001 /s/Fred W. Chel Feb. 13, 2001
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
1. Incentive Bonus Plan 18
2. Indemnification Agreement 18
3. Schedule of Indemnification Agreements 22
(13) Annual Report to Shareholders
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.
(A) 2. Indemnification Agreement
THIS INDEMNIFICATION AGREEMENT is made as of the 1st day of June, 1999,
by
and between KIT MANUFACTURING COMPANY, a California corporation (the
"Company"), and HAROLD D. BREACH ("Indemnitee").
R E C I T A L S
A. Indemnitee is currently serving as President and General Manager
of
the
Company and in such capacity has rendered and is expected to render valuable
services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and California statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject
due to their position with the Company and has concluded that such insurance
may provide inadequate and unacceptable protection to certain individuals
requested to serve as its directors and officers.
C. In order to induce and encourage highly experienced and capable persons
such as Indemnitee to continue to serve as a director of the Company, the
Board of Directors has determined, after due consideration and investigation
of the terms and provisions of this Agreement and the various other options
available to the Company and Indemnitee in lieu hereof, that this Agreement
is
not only reasonable and prudent, but necessary to promote and ensure the best
interests of the Company and its shareholders.
NOW, THEREFORE, in consideration of the continued services of
Indemnitee
and in order to induce Indemnitee to continue to serve as an officer, the
Company and Indemnitee do hereby agree as follows:
1. Definitions.
18
(a) The term "Expenses" includes without limitation attorneys' fees and
any expenses of establishing a right to indemnification.
(b) The term "Proceeding" means any threatened, pending or completed
action
or proceeding, whether civil, criminal, administrative or investigative.
5. Agreement to Serve.
Indemnitee agrees to serve or continue to serve as a director, officer
or
employee of the Company, as the case may be, at the will of the Company for
so long as Indemnitee is duly elected or appointed or until such time as
Indemnitee tenders his or her resignation in writing.
5. Indemnification in Third Party Proceedings.
Subject to Section 5 hereof, the Company shall indemnify Indemnitee in
accordance with the provisions of this Section 3 if Indemnitee is a party to
or is threatened to be made a party to any Proceeding (other than an action
by or in the right of the Company to procure a judgement in its favor) by
reason of the fact that Indemnitee was or is a director of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against Expenses, judgements, fine,
settlements and other amounts actually and reasonably incurred in connection
with such Proceeding, to the fullest extent permitted by California law.
5. Indemnification in Proceedings By or in the Right of the Company.
Subject to Section 5 hereof, the Company shall indemnify Indemnitee in
accordance with the provisions of this Section 4 if Indemnitee was or is a
party or is threatened to be made a party to any threatened, pending or
completed action by or in the right of the Company to procure a judgement in
its favor by reason of the fact that Indemnitee was or is a director of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another enterprise, against Expenses actually
and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action to the fullest extent permitted by California law.
5. Limitations on Indemnification.
No payments pursuant to this Agreement shall be made by the Company:
(a) To indemnify or advance Expenses to Indemnitee with respect to
Proceedings initiated or brought voluntarily by Indemnitee and not by way of
defense, except with respect to Proceedings brought to establish or enforce
a right to indemnification under this Agreement or any other statute or law
or otherwise as required under California law, but such indemnification or
advancement or Expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) To indemnify Indemnitee for any Expenses, judgements, fines,
settlements
and other amounts for which payment is actually made to Indemnitee under a
valid and collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(c) To indemnify Indemnitee for any Expenses, judgements, fines,
settlements
or other amount sustained in any Proceeding for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company pursuant
to the provisions of 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law;
19
(d) To indemnify Indemnitee for any Expenses, judgements fines, settlements
or other amounts resulting from Indemnitee's conduct which is finally
adjudged to have been willful misconduct, knowingly fraudulent or
deliberately dishonest; or
(e) If a court of competent jurisdiction shall finally determine that
any indemnification hereunder is unlawful.
6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provisions of this Agreement, to the extent
that
Indemnitee has been successful on the merits in defense of any Proceeding,
Indemnitee shall be indemnified against Expenses actually and reasonably
incurred by Indemnitee in connection therewith.
7. Advances of Expenses.
Expenses incurred by Indemnitee in defending any Proceeding shall be
advanced
by the Company prior to the final disposition of such Proceeding upon receipt
by the Company of an undertaking by Indemnitee to repay such amount unless
it is ultimately determined that Indemnitee is entitled to indemnification
hereunder.
8. Right of Indemnitee to Indemnification Upon Application;
Procedure
Upon
Application.
Upon receipt of notice from Indemnitee requesting indemnification or an
advance of Expenses pursuant to Section 3, 4 or 7 hereof, the Company agrees
that a meeting of the Board of Directors shall be held (or that action shall
be taken by the Board of Directors by written consent) within forty-five (45)
days of receipt by the Company of such notice. At such meeting, the Board of
Directors shall determine whether or not Indemnitee has satisfied the
requisite standard of care and is entitled to the indemnification or advance
requested in the notice under California law. If the Board of Directors is
unable to make such determination because there is not a quorum of directors
who are not parties to the Proceeding, the Company agrees to take such action
as is necessary to present the question of the propriety of the requested
indemnification or advance to the shareholders for their determination.
The right to indemnification or advances as provided by this Agreement
shall
be enforceable by Indemnitee in any court of competent jurisdiction. Neither
the failure of the Company (including its Board of Directors or shareholders)
to have made such a determination prior to the commencement of such action
that indemnification or advances are proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including its Board of Directors or
shareholders) that Indemnitee has not met such applicable standard of
conduct,
shall be a defense to the action or create a presumption that Indemnitee has
not met the applicable standard of conduct.
9. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the Indemnitee
shall continue to serve as an officer of the Company and thereafter so long
as the Indemnitee shall be subject to any possible Proceeding, the Company,
subject to subsection (c), shall promptly, obtain and maintain in full force
and effect directors and officers liability insurance ( D&O Insurance ) in
reasonable amounts from established and reputable insurers.
20
(b) In all D&O Insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
officers.
(c) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D & O Insurance if the Company determines in good faith
that such insurance is not reasonably available, the premium costs for such
insurance are disproportionate to the amount of coverage provided, the
coverage
provided by such insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
10. Indemnification Hereunder Not Exclusive.
The indemnification provided by this Agreement shall not be deemed
exclusive
of any other rights to which Indemnitee may legally be entitled under the
Articles of Incorporation, the Bylaws, any agreement, any vote of
shareholders
or disinterested directors, the General Corporation Law of the State of
California, or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office. The indemnification
under this Agreement shall continue as to Indemnitee even though he may have
ceased to be a director, officer, employee or agent of the Company and shall
inure to the benefit of the heirs and personal representatives of Indemnitee.
11. Partial Indemnification.
If Indemnitee is entitled under any provisions of this Agreement to
indemnification by the Company for some or a portion of any Expenses,
judgements, fines, settlements and other amounts incurred in connection with
defending or settling a Proceeding but not entitled, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses, judgements, fines, settlements and other amounts
to which Indemnitee is entitled.
12. Savings Clause.
If this Agreement or any portion thereof is invalidated on any ground
by
any court of competent jurisdiction, then the Company shall nevertheless
indemnify Indemnitee as to any Expenses, judgements, fines, settlements and
other amount incurred in connection with defending or settling a Proceeding
to the full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated or by any other applicable law.
13. Notices.
Indemnitee shall, as a condition precedent to his or her right to be
indemnified under this Agreement, give to the Company notice in writing as
soon as practicable of any claim made against Indemnitee for which
indemnifications will or could be sought under this Agreement. Notice to
the Company shall be directed to KIT Manufacturing Company, 530 East Wardlow
Road, P.O. Box 848, Long Beach, California 90801, Attention: Chairman and
Chief Executive Officer (or such other address as the Company shall designate
in writing to Indemnitee).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of
the date and year first above written.
21
KIT MANUFACTURING COMPANY
By
Dan Pocapalia, Chairman
and Chief Executive
Officer
INDEMNITEE
By
Harold D. Breach
(A) 3. Schedule of Indemnification Agreements
The following is a list of parties to indemnification agreements that
are
substantially identical to the indemnification agreement filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended October
31,2000:
NAME DATE EXECUTED
Dan Pocapalia March 10, 1987
Fred Chel March 10, 1987
Frank S. Chan, Jr. March 9, 1993
John W. H. Hinrichs March 29, 1994
John F.Zaccaro March 29, 1994
Bruce K. Skinner September 15, 1998
Matthew S. Pulizzi March 10, 1987
Marlyce A. Faldetta March 10, 1987
22
KIT Manufacturing Company
2000 Annual Report
23
KIT Manufacturing Company
Financial Highlights
(Dollars in thousands except per share amounts)
Operating Results for the
Year Ended October 31 2000 1999 1998 1997 1996
Sales $47,919 $63,251 $61,030 $76,465 $97,158
Net income (loss) $ (269)(1) $373 $(357) $(2,312)
$1,431(2)
Net income (loss) per share:
Basic ($0.25)(1) $0.34 ($0.32) ($2.08)
$1.29(2)
Diluted ($0.25)(1) $0.34 ($0.32) ($2.08)
$1.27(2)
Weighted-average shares outstanding:
Basic 1,064,212 1,110,934 1,110,934 1,110,934 1,110,934
Diluted 1,064,212 1,110,934 1,110,934 1,110,934 1,130,433
Working capital $7,532 $7,476 $6,861 $7,215 $9,984
(1) Includes gain on sale of business property in Chino, California of
$853,000,
net of related income taxes, or $0.81 per share and gain on sale of business
property in
McPherson, Kansas of $402,000, net of related income taxes, or $0.38 per
share.
(2) Includes gain on business interruption claim of $373,000, net of
related
income taxes, or $0.34 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.
24
To Our Shareholders:
Declining operating results for fiscal 2000 were the result of a 24% decrease
in sales compared to fiscal 1999. The sales decrease was the result of
several
national economic factors affecting both recreational vehicle and
manufactured
home sales. Softening retail demand due to the rise in interest rates
coupled with increased fuel costs in the Spring of 2000 directly affected
the normal retail selling season for our recreational vehicle dealers.
Manufactured home sales decreased due to difficult market conditions caused
by an oversupply of finished product at the retail level and restrictive
retail financing environment as lenders reacted to interest rate increases
and an increase in dealer insolvencies.
Despite the uncertainty of the economic horizon, the National RV show in
Louisville, Kentucky held in early December 2000 provided management with
a realistic view of what lies ahead for fiscal 2001. The dealer body agreed
that the improvements and enhancements made to the RV lines as well as the
expansion of the model mix and product pricing, have made the RV products
more exciting and present an attractive business opportunity to potential and
existing dealers. Management is confident that our continuing commitment to
trouble-free quality standards and high-value RV's will continue to reward
the Company through market expansion in meeting the demands of
this highly competitive business.
During the fiscal year, the recreational vehicle division redesigned several
product lines and introduced new models. The redesigned travel trailers and
fifth wheels have been well received by the dealer body and the rail
consumer. As well as the changes made to the RV product, significant
operational cost cutting measures and personnel realignments have been
implemented. Both of these forward looking actions should position the RV
segment of our business to be extremely competitive and more responsive to
the needs of the marketplace as the current economic conditions improve.
The manufactured homes division sales dollars decreased 30%, from $31.1
million in fiscal 1999 to $21.7 million in fiscal 2000. The number of
manufactured homes sold decreased 31% from 858 homes in fiscal 1999 to 595
homes in fiscal 2000. Industry wide, sales to dealers were down nearly 32%
from 1999. The overall industry sales decline was the result of an oversupply
of homes on the market, as well as the fact that national retail sales were
down 23%.
The manufactured homes division continued its participation in the retail
sales partnership located in Nampa and Fruitland, Idaho during fiscal 2000.
These KIT Courtyard ventures have had a positive impact on the operations of
KIT from the standpoint of increased factory production from increased home
sales. The joint venture now markets their multi-sectional homes under "land
package" deals. This technique bundles the manufactured home with developed
land in a subdivision setting and allows the rail customer the option of
purchasing basically a "site" home. This makes the home and the land under it
eligible for a conventional real estate mortgage loan in most states.
The Company's financial position remains strong. KIT had no long-term debt
and
its line of credit remained unused at fiscal year-end. Working capital was
$7.5 million and management believes that it is sufficient to provide the
Company with funds necessary for operational maintenance and anticipated
growth.
We anticipate that the first six months of fiscal 2001 will be a difficult
25
time for the manufactured home industry, as the unfavorable market conditions
remain. Management anticipates, however, that KIT should perform better than
the industry to some degree because of the favorable results of the KIT
Courtyard "land package" marketing concept described above.
With respect to the recreational vehicle division and the RV industry, it
appears that the economy will continue to present this business sector with a
challenging business environment. Fuel prices and interest rates continue to
remain high while consumer confidence remains tentative. First quarter
operations will see our normal seasonal slowdown in RV sales, however,
management believes that the business strategies that KIT has implemented as
noted above should help give rise to a much improved operational profit
figure
as fiscal 2001 progresses.
Sincerely,
/s/Dan Pocapalia
Dan Pocapalia
Chairman of the Board and Chief Executive Officer
26
Recreational Vehicles
Having consistently produced and delivered high quality, high value products
to our customers for 55 years, KIT remains one of the m4 or 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 RV's 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 introduced several new models in addition to new
innovations in our existing model lineup and improved our competitive
position by design 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 Road
Ranger, Companion, Millennium, Patio Hauler and our entry level models, the
RoadRanger LE and Companion LE. 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 Road Ranger and Companion LE brands have been extremely well
received by the dealer body. KIT expects the retail buyers' enthusiastic
reaction will be to choose these products for the many quality features
provided at a 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 befits available in
their price range. This new RV 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 PatioHauler 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 2001.
27
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
fifth-wheel market.
More than 100 independent dealers now distribute KIT recreational vehicles to
the retail consumer throughout the western United States and Western Canada.
The Millennium and PatioHauler models are retailed throughout 23 states in
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 homes division is currently experiencing unfavorable
economic factors also affecting the entire manufactured homes industry. Value
pricing and marketing innovation, coupled with a continuing emphasis on
reducing operating costs, have positioned this division for a profitable
turn-around.
Manufactured homes builds both single and multi-sectioned dwellings designed
to be transported to a prepared home site. 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 homes division continues to aggressively develop new
products
that incorporate innovative floor plans, modem colors and functional design.
KIT manufactured homes are distributed from production facilities in
Caldwell,
Idaho through a network of approximately 34 dealers located in eight
Western states.
KIT homes are marketed in four product lines. Our Cypress homes offer the
budget conscious entry-level buyer an ideal way to purchase their first home.
The Sunrise residential series has recently bean introduced primarily for
placement in sub-divisions and offers all of the amenities of a site-built
home at a better value point. This series shows great promise and is expected
to be a major share of KIT's business in the future. Our SierraXL homes are
generally larger and provide a wide array of styles and custom features. The
Golden State line, our most elegant series of homes, provides outstanding
value for individuals who place a premium on comfort and luxury. Living space
in the 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.
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.
28
KIT Manufacturing Company
Management's Discussion And Analysis of Results of Operations and
Financial Condition
Results of Operations
Fiscal 2000 Compared to Fiscal 1999
Sales declined 24% to $47.9 million compared to fiscal 1999 when sales were
$63.3 million. The net loss for the period was $269,000, or $0.25 per share,
in comparison to net income in fiscal 1999 of $373,000, or $0.34 per share.
Sales decreases in the RV division have been significantly impacted from
rising interest rates and higher fuel costs. Sales of manufactured homes have
been impacted unfavorably by lender's tightened credit standards as well as
industry-wide excess finished goods inventory levels.
Recreational vehicle division sales decreased 18% to $26.2 million from sales
of $32.2 million in fiscal 1999. The overall decrease in RV shipments was
21%, down from 2,293 units in fiscal 1999 to 1,816 units in fiscal 2000. This
decline consisted of a decrease in fifth-wheel model shipments from 788 units
in fiscal 1999 to 558 units in fiscal 2000 and a decrease in travel trailer
shipments from 1,505 units in fiscal 1999 to 1,258 shipped in fiscal 2000.
The model mix tended toward higher priced units in fiscal 2000. Because of
the results of operations during fiscal 2000, the Company made key management
changes and realigned the RV operations to be more competitive in fiscal
2001.
Manufactured homes sales decreased 30% to $21.7 million in fiscal 2000 from
sales of $31.1 million in fiscal 1999. This decrease reflected a 37% decline
in shipments of single-section homes from 84 units in fiscal 1999 to 53 units
in fiscal 2000 and a 30% decrease in shipments of multi-section homes from
774 units in fiscal 1999 to 542 units in fiscal 2000. Total unit shipments
decreased 31% from 858 homes in fiscal 1999 to 595 homes in fiscal 2000. The
manufactured homes division implemented modest price increases in fiscal
2000 and fiscal 1999 to counter increases in raw material costs.
Gross profit as a percent of sales decreased to 7% in fiscal 2000 in
comparison to 10% in fiscal 1999. The gross profit dollars decreased 47%, or
$3,060,000, from $6,507,000 in fiscal 1999 to $3,447,000 in fiscal 2000. The
primary reason for the decrease was a decrease in operating efficiencies in
both divisions due to lower production volumes.
Selling, general and administrative expenses increased to 11% of sales in
comparison to 9% of sales in fiscal 1999. The selling, general and
administrative dollars decreased 6%, or $373,000, from $5,837,000 in fiscal
1999 to $5,464,000 in fiscal 2000 due to continued planned reductions in
marketing and administrative costs.
Equity in the loss of the retail sales partnership increased 317% from
$156,000 in fiscal 1999 to $651,000 in fiscal 2000. The increase in losses
was the result of the unfavorable environment for the retail sales of the
manufactured housing that existed during much of fiscal 2000.
During February 2000, the Company sold land and buildings located in Chino,
California for consideration of $1,652,000, resulting in a gain of
$1,455,000. During June 2000, the Company sold land and buildings located in
McPherson, Kansas for consideration of $1,187,000, resulting in a gain of
$621,000. The
29
total gain resulting from these two sales is $2,076,000.
Net interest income of $61,000 in fiscal 2000, as compared to net interest
income of $58,000 in fiscal 1999, was the result of higher average cash
investments, partially offset by higher average borrowings in fiscal 2000 as
compared to fiscal 1999.
Fiscal 1999 compared to Fiscal 1998
Sales rose 4% to $63.3 million compared to $61.0 million in fiscal 1998. 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 derived
from improved operations in the manufactured homes division. Operational
profits in this division were primarily the result of the sales increase from
increased trailer sales.
Recreational vehicle division sales decreased 7% to $32.2 million from $34.6
million in fiscal 1998. The overall decrease in RV shipments was 9%, down
from 2,511 units in fiscal 1998 to 2,293 units in fiscal 1999. This decline
consisted of a decrease in fifth-wheel model shipments from 1,056 units in
fiscal 1998 to 788 units in fiscal 1999 and travel trailer shipments of 1,505
units up from 1,455 shipped in fiscal 1998. The model mix tended toward lower
priced units in fiscal 1999.
Manufactured homes sales increased 18% to $31.1 million in fiscal 1999 from
sales of $26.4 million in fiscal 1998. This increase reflected an 18% decline
in shipments of single-section homes from 103 units in fiscal 1998 to 84
units in fiscal 1999 and a 14% increase in shipments of multi-section homes
from 677 units in fiscal 1998 to 774 units in fiscal 1999. Total unit
shipments increased 10% from 780 homes in fiscal 1998 to 858 homes in
fiscal 1999.
Gross profit as a percent of sales increased to 10% in fiscal 1999 in
comparison to 8% in fiscal 1998. The gross profit dollars increased 27%, or
$1,397,000, from $5,110,000 in fiscal 1998 to $6,507,000 in fiscal 1999. The
primary reasons for the percentage increase to sales 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 1998. The Company increased its selling costs as a
percentage of sales in RV's in order to maintain market share as competition
increased, which were offset by decreases in administrative costs.
Equity in the loss of the retail sales partnership increased 189% from
$54,000 in fiscal 1998 to $156,000 in fiscal 1999. This increase is due to
the establishment of a second retail sales location in Fruitland, Idaho.
Net interest income of $58,000 in fiscal 1999, as compared to net interest
income of $55,000 in fiscal 1998, was the result of higher average cash
investments and lower average borrowings in fiscal 1999 compared to fiscal
1998.
Liquidity and Capital Resources
The current ratio at fiscal year-end 2000 rose to 2.9 in comparison to 2.3 at
the end of fiscal 1999. The current ratio is the result of dividing current
30
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 the
receipt of proceeds from the sale of idle plant facilities in Chino,
California and McPherson, Kansas. The sales of these plant facilities
increased available cash, which was partially utilized to pay down current
accounts payable.
In addition to funding capital requirements with available cash, the Company,
through financing activities, funds seasonal working capital requirements
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 is expected to come primarily from cash provided by
operating activities. See Note 5 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 2000 or 1999.
The Company believes that available cash, supplemented as needed with funds
available on its line of credit, will provide it with sufficient resources
to meet present and reasonably foreseeable working capital requirements and
other cash needs over the next twelve months.
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 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.
During fiscal 2000, under the common stock buyback program, the Company
purchased 83,600 shares of common stock at an average price of $5.98 per
share, exclusive of fees and commissions.
31
KIT Manufacturing Company
Balance Sheets
October 31, 2000
1999
ASSETS
Current Assets
Cash and cash investments $4,489,000
$4,731,000
Accounts receivable, net of allowance for doubtful
accounts of $29,000 in 2000 and $35,000 in 1999 2,446,000
4,768,000
Accounts receivable from retail sales partnership 341,000
179,000
Inventories 2,798,000
2,454,000
Prepaids and other assets 324,000
269,000
Deferred income taxes 1,025,000
721,000
Total Current Assets 11,423,000
13,122,000
Property, Plant and Equipment, at cost
Land 576,000
745,000
Buildings and improvements 6,759,000
8,281,000
Machinery and equipment 3,939,000
3,939,000
Construction in progress 20,000
72,000
11,294,000
13,037,000
Less: accumulated depreciation (5,657,000)
(6,488,000)
5,637,000
6,549,000
Other assets 286,000
90,000
$17,346,000
$19,761,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 818,000
$2,538,000
Accrued payroll and payroll related liabilities 903,000
1,191,000
Accrued marketing programs 471,000
402,000
Accrued expenses 1,699,000
1,515,000
Total Current Liabilities 3,891,000
5,646,000
Deferred income taxes 1,487,000
1,474,000
Losses in excess of investments in and advances to
retail sales partnership 96,000
- -
5,474,000
7,120,000
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 1,027,334 shares in
2000 and 1,110,934 shares in 1999 694,000
750,000
Additional paid-in capital 775,000
842,000
Retained earnings 10,403,000
11,049,000
Total Shareholders' Equity 11,872,000
12,641,000
$17,346,000
$19,761,000
The accompanying notes are an integral part of these financial statements.
32
KIT Manufacturing Company
Statements of Income
For the Years Ended October 31, 2000 1999
1998
Sales $46,391,000 $61,101,000
$60,992,000
Sales to retail sales partnership 1,528,000 2,150,000
38,000
47,919,000 63,251,000
61,030,000
Costs and expenses
Cost of sales 43,373,000 55,179,000
55,893,000
Cost of sales to retail sales
partnership 1,099,000 1,565,000
27,000
Selling, general and admin. expenses 5,464,000 5,837,000
5,583,000
Equity in loss of retail sales
partnership 651,000 156,000
54,000
50,587,000 62,737,000
61,557,000
Operating (loss) income (2,668,000) 514,000
(527,000)
Other income (expense)
Gain on sale of property, plant
and equipment 2,076,000 -
- -
Interest income 246,000 165,000
166,000
Interest expense (185,000) (107,000)
(111,000)
(Loss) income before income taxes (531,000) 572,000
(472,000)
(Benefit) provision for income taxes (262,000) 199,000
(115,000)
Net (loss) income $(269,000) $ 373,000
$
(357,000)
Net (loss) income per share:
Basic ($0.25) $0.34
($0.32)
Diluted ($0.25) $0.34
($0.32)
Weighted-average shares outstanding:
Basic 1,064,212 1,110,934
1,110,934
Diluted 1,064,212 1,110,934
1,110,934
Statements of Shareholders' Equity
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings
Total
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 $842,000 $11,049,000
$12,641,000
Purchase of common stock (83,600) (56,000) (67,000) (377,000)
(500,000)
Net loss (269,000)
(269,000)
Balance, October 31, 2000 1,027,334 $694,000 $775,000 $10,403,000
$11,872,000
The accompanying notes are an integral part of these financial statements.
33
KIT Manufacturing Company
Statements of Cash Flows
For the Years Ended October 31, 2000 1999
1998
Cash Flows From Operating Activities:
Cash received from customers $ 47,664,000 $62,344,000
$61,523,000
Interest received 246,000 165,000
166,000
Income taxes received -- 107,000
1,263,000
Cash paid to suppliers and employees (49,367,000) (60,505,000)
(62,614,000)
Interest paid (185,000) (107,000)
(111,000)
Income taxes paid (78,000) -
- -
Net cash (used in) provided by operating
activities (1,720,000) 2,004,000
227,000
Cash Flows From Investing Activities:
Purchase of property, plant and
equipment (316,000) (455,000)
(578,000)
Proceeds from disposals of property,
plant and equipment 2,839,000 32,000
48,000
Investment in and advances to
retail sales partnership (545,000) (80,000)
(140,000)
Net cash provided by (used in) investing
activities 1,978,000 (503,000)
(670,000)
Cash Flows From Financing Activities:
Proceeds from line-of-credit borrowings 16,806,000 14,693,000
17,790,000
Principal payments on line-of-credit
borrowings (16,806,000) (14,693,000)
(17,790,000)
Purchase of treasury stock (500,000) --
- --
Net cash used in financing activities (500,000) --
- --
Net (decrease) increase in cash (242,000) 1,501,000
(443,000)
Cash and cash investments at beginning
of year 4,731,000 3,230,000
3,673,000
Cash and cash investments at end of year $4,489,000 $4,731,000
$3,230,000
Reconciliation of Net (Loss) Income to Net Cash (Used in) Provided by
Operating
Activities:
Net (loss) income $ (269,000) $373,000
$(357,000)
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities:
Depreciation and amortization 465,000 609,000
639,000
Gain on sale of property, plant and
equipment (2,076,000) --
- --
Deferred income taxes (291,000) 168,000
(57,000)
Equity in loss of retail sales partnership 651,000 156,000
54,000
Changes in operating assets and liabilities:
Accounts receivable 2,160,000 (906,000)
492,000
Inventories (344,000) 2,367,000
(1,419,000)
Prepaids and other assets (263,000) 103,000
92,000
Accounts payable and accruals (1,755,000) (957,000)
(422,000)
Accrued income taxes 2,000 91,000
1,205,000
Net cash (used in) provided by operating
activities $(1,720,000) $2,004,000
$227,000
The accompanying notes are an integral part of these financial statements.
34
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.
Risks and Uncertainties
The Company sustained losses from operations in the current year of
$2,668,000
as a result of decreased sales and lower margins. Management believes the
overall industry slowdown and unfavorable market conditions were the primary
contributors to these results. While management cannot predict market
conditions for fiscal 2001, management believes cash flows from operations,
cash reserves on-hand and availability under its line of credit are
sufficient
to meet present and reasonably foreseeable working capital requirements over
the next twelve months.
Valuation of Inventories
Inventories are stated at the lower of cost (last-in, first-out for
material
and first-in, first-out for labor and overhead) or market.
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.
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.
35
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 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,
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, 2000, 1999 and
1998 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 known cliams and
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
The Company has adopted the disclosure-only provisions under Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("SFAS No. 123"). Pro forma information is required by SFAS No.
123, and has been determined as if the Company accounted for stock options
under the fair value method as prescribed in the statement. The Company
computed the compensation expense of the option granted using the methodology
described in SFAS No. 123 and determined the result to be immaterial.
Reclassifications
Certain amounts in the prior period financial statements have been
reclassified
to conform to the current year's presentation.
36
2. Investments
The Company's investment in and advances to the retail sales partnership,
net of the Company's pro rata share of cumulative equity in losses, is
reflected as a noncurrent liability totaling $96,000 at October 31, 2000
and a component of other assets equal to $10,000 at October 31, 1999. The
retail sales partnership has reflected all advances from the Company as a
component of current liabilities equal to $625,000 and $80,000 at October 31,
2000 and 1999 respectively. The condensed financial information of the
partnership is as follows for the years ended October 31, 2000 and 1999, and
for the period from inception, August 31, 1998, to October 31, 1998.
2000 1999
1998
(unaudited)
Condensed Statement of Income Information:
Sales $3,720,000 $3,912,000
$77,000
Cost of sales 3,317,000 3,173,000
38,000
Selling, general and administrative
expenses 823,000 813,000
110,000
Interest expense 201,000 149,000
6,000
Net loss $ (621,000) $(223,000)
$(77,000)
Condensed Balance Sheet Information:
Current assets $2,602,000 $2,127,000
Noncurrent assets 389,000 446,000
$2,991,000 $2,573,000
Current liabilities $3,681,000 $2,623,000
Noncurrent liabilities 31,000 50,000
Members' deficit (721,000) (100,000)
$2,991,000 $2,573,000
3. Inventories
Inventories are summarized as follows:
October 31, 2000 1999
Raw material $1,664,000
$1,792,000
Work in process 597,000
654,000
Finished goods 537,000
8,000
$2,798,000
$2,454,000
The excess of current replacement cost over last-in, first-out cost was
$649,000 at October 31, 2000 and $730,000 at October 31, 1999.
37
4. Shareholders' Equity
Stock Options
In 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. In June 1999, the Company granted to one officer
of the Company, options to purchase up to 40,000 shares of the Company's
common stock, at 100% of the then fair value, or $7.00 per share. Options
granted vest in four equal annual installments beginning one year after the
date of grant and 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. Of the initial grants,
options to purchase 55,000 shares have been retired due to the termination
of one grantee and the death of a second grantee. The option to purchase
the 35,056 additional shares of the Company's common stock was also retired
in June 1999. On October 31, 2000, 1999 and 1998, total unexercised options
were 81,944, 81,944 and 112,000, of which 51,944, 41,944 and 112,000
options, respectively, were exercisable.
Stock Repurchase
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.
Through October 31, 2000, the Company, under the repurchase plan,
purchased 83,600 common shares.
5. Bank Credit Line
The Company is party to a revolving credit agreement with a bank, which
expires in April 2001, 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, 2000, there was no outstanding balance on the revolving credit
line, and the maximum borrowing permitted was the lesser of $4,500,000 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 2000, 1999
and 1998 were $185,000, $107,000 and $111,000, respectively.
6. Commitments and Contingencies
The Company was contingently liable at October 31, 2000 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. Historically, the net gain or loss on such resales has
not been significant. The total selling value of finished units subject to
such agreements as of October 31, 2000 and 1999 was approximately $7,715,000
and $10,184,000, respectively.
In addition, the Company is contingently liable to financial
institutions
for standby letters of credit totaling $153,000 and $305,000 as of October
31,
2000 and 1999, respectively. These letters of credit were established
38
to satisfy the self-insured workers' compensation regulations of the states
in which the Company conducted manufacturing operations.
The Company also guarantees the indebtedness of the retail sales
partner-
ship related to a $300,000 note payable to a bank. The note payable is due in
full, plus accrued interest thereon, by March 15, 2001.
On December 15, 1998, the Company was named as a defendant in a lawsuit
filed by one of its former dealers. A jury awarded the plaintiff $370,000 in
damages, however, the verdict is currently under appeal with the Idaho State
Supreme Court. The outcome of the appeal is not known at this time but the
Company intends to defend it position vigorously.
The Company was named as a defendant in a class-action lawsuit filed by
certain former employees on May 15, 2000. This case was subsequently settled
in the amount of $70,000 and this amount has been reflected on both the
balance sheet and as a component of profit and loss at October 31, 2000.
The Company, in its normal course of business is party to other pending
lawsuits or may be subject to other threatened lawsuits. While the outcome of
pending or threatened lawsuits cannot be predicted with certainty, and an
unfavorable outcome could have a negative impact on the Company, at this
time,
in the opinion of management, the ultimate resolution of these matters will
not have a material effect on the Company's financial position, results of
operation or liquidity.
Management does not expect that losses, if any, from the contingencies
described above will be of material importance to the financial condition or
future earnings of the Company.
39
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, 2000 1999
1998
Current:
Federal $(1,000) $26,000
$(58,000)
State 30,000 5,000
29,000 31,000
(58,000)
Deferred:
Federal (242,000) 125,000
(46,000)
State (49,000) 43,000
(11,000)
(291,000) 168,000
(57,000)
$ (262,000) $ 199,000
$(115,000)
The sources of deferred taxes were as follows:
October 31, 2000 1999
1998
Inventory cost capitalization $(162,000) 77,000
$(44,000)
Sales to retail sales partnership (22,000) (63,000)
(37,000)
Accrued warranty costs (24,000) $68,000
197,000
Workers' compensation reserves 53,000 78,000
76,000
Non-deductible reserve (148,000)
State income and franchise taxes 64,000 (11,000)
(102,000)
Net operating loss carryforwards 19,000
(55,000)
Other (52,000)
(92,000)
$ (291,000) $168,000
$(57,000)
Reconciliation of the effective tax rates and the U.S. statutory tax
rate
is
summarized as follows:
October 31, 2000 1999
1998
Statutory tax rate (34.0%) 34.0%
(34.0%)
Tax exempt interest (16.6) (7.2)
(8.3)
State tax provision, net of federal tax effect (2.4) 5.5
(1.5)
Business meals and entertainment 1.6 1.9
1.8
Officer's life insurance 1.0
Adjustment of prior years income tax accruals
16.9
Other 1.1 0.6
0.7 (49.3%) 34.8%
(24.4%)
40
The components of the deferred tax asset and liability are as follows
:
October 31, 2000 1999
Deferred tax asset:
Allowance for doubtful accounts $ 15,000 $15,000
Inventory cost capitalization 162,000 -
Sales to retail sales partnership 122,000 100,000
Accrued warranty costs 218,000 194,000
Workers' compensation reserves 140,000 193,000
Non-deductible reserve 148,000
State income and franchise taxes 43,000
Net state operating loss carryforwards 165,000 165,000
Other 55,000 11,000
$1,025,000 $721,000
Deferred tax liability:
State income and franchise taxes $ 21,000 $ -
Accelerated depreciation 371,000 379,000
Involuntary conversion of plant
facility and equipment 1,095,000 1,095,000
$1,487,000 $1,474,000
The Company's state net operating loss carryforwards begin to expire in
2002.
41
8. Segment Information
The Company designs, manufactures and sells manufactured homes, 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 gains or losses on the sales of plant facilities 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, 2000 1999 1998
(Dollars in thousands)
SALES
Manufactured homes $21,672 $31,088
$26,410
Recreational vehicles 26,247 32,163
34,620
Total sales $47,919 $63,251
$61,030
INCOME (LOSS) BEFORE INCOME TAXES
Operating income (loss)
Manufactured homes $ (1,375) $2,445
$2,021
Recreational vehicles (1,293) (1,931)
(2,548)
Total operating income (loss) (2,668) 514
(527)
Gain on sale of property, plant
and equipment (2,076) -
- -
Interest income 246 165
166
Interest expense (185) (107)
(111)
(Loss) income before income taxes $ (531) $572
$(472)
IDENTIFIABLE ASSETS
Manufactured homes $9,849 $9,916
$8,983
Recreational vehicles 7,497 9,845
11,368
Total assets $17,346 $19,761
$20,351
DEPRECIATION AND AMORTIZATION
Manufactured homes $276 $308
$289
Recreational vehicles 189 301
350
Total depreciation and amortization $465 $609
$639
42
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, 2000 and 1999, and the results
of its operations and its cash flows for each of the three years
in the period ended October 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
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 auditing standards generally
accepted in the United States of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
December 11, 2000
43
KIT Manufacturing Company
Selected Financial Data
October 31, 2000 1999 1998 1997
1996
(Dollars in thousands
except per share amounts)
FISCAL YEAR
Sales $47,919 $63,251 $61,030 $76,465
$97,158
Net (loss) income $ (269)(1) $373 $(357) $(2,312)
$1,431(2)
Cash dividends paid $ 0 $ 0 $ 0 $ 0
$ 0
Capital expenditures $316 $455 $578 $1,227
$434
Depreciation $465 $609 $639 $677
$670
AT YEAR-END
Working capital $7,532 $7,476 $6,861 $7,215
$9,984
Current ratio 2.9:1 2.3:1 2.0:1 2.0:1
2.1:1
Ppty, plnt & equip, net $5,637 $6,549 $6,735 $6,844
$6,319
Total assets $17,346 $19,761 $20,351 $21,137
$25,139
Long-term obligations $0 $0 $0 $0
$0
Shareholders' equity $11,872 $12,641 $12,268 $12,625
$14,937
PER SHARE
Basic net (loss) income $(0.25)(1) $0.34 $(0.32) $(2.08)
$1.29(2)
Diluted net (loss) income $(0.25)(1) $0.34 $(0.32) $(2.08)
$1.27(2)
Shareholders' equity $11.16 $11.38 $11.04 $11.36
$13.45
(1) Includes gain on sale of business property in Chino, California of
$853,000,
net of related income taxes, or $0.81 per share and gain on sale of business
property in
McPherson, Kansas of $402,000, net of related income taxes, or $0.38 per
share.
(2) Includes gain on a business interruption claim of $373,000, net of
related
income
taxes, or $0.34 per share.
44
KIT Manufacturing Company
Quarterly Statistics
(Dollars in thousands except per share amounts)
(Unaudited)
Fiscal 2000 First Quarter Second Quarter Third Quarter
Fourth Quarter
Sales $10,966 $14,908 $13,559
$ 8,486
Gross profit (loss) 1,348 1,224 974
(30)
Income (loss) before income taxes 273 1,476 91
(2,371)
Net income (loss) 177 865 53
(1,364)
Basic and diluted net income (loss)
per share $0.16 $0.80 $0.05
($1.26)
Fiscal 1999
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)
Market Prices of Common Stock
Fiscal 2000 First Quarter Second Quarter Third Quarter Fourth
Quarter
High 5 5/8 6 7/8 7 3/16 6 3/4
Low 4 1/4 5 1/4 6 3/8 4 7/8
Dividends 0 0 0 0
Fiscal 1999
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
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 were approximately 346 shareholders of record on January 5, 2001.
45
Corporate Information
Directors Stock Registrar and Transfer Agent
Dan Pocapalia ChaseMellon Shareholder Services,
Chairman of the Board, L.L.C., Ridgefield Park, New Jersey
Chief Executive Officer of KIT
Fred W. Chel Legal Counsel
Business Consultant, O'Melveny & Myers, LLP
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
President Academy of Medical Exchange Commission (SEC) on Form 10-
K,
Films since 1991. 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 Website: www.kitmfg.com
Matthew S. Pulizzi Annual Meeting of Shareholders
Vice President - Customer Relations Tuesday, March 13, 2001, 9:00 A.M.
Long Beach Marriott
Marlyce A. Faldetta 4700 Airport Plaza Drive
Corporate Secretary Long Beach, California
46
Addendum
Housing Solutions LLC
Financial Statements
47
Report of Independent Accountants
To the Members
Housing Solutions LLC
In our opinion, the accompanying balance sheets and the related statements of
income and
cash flows present fairly, in all material respects, the financial position
of
Housing
Solutions LLC at October 31, 2000 and 1999, and the results of its operations
and its
cash flows for the years then ended in conformity with accounting principles
generally
accepted in the United States of America. 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 auditing standards generally accepted in the
United States
of America, 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 our
opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 9, 2001
48
Housing Solutions LLC
Balance Sheets
At October 31, 2000 and 1999
October 31, 2000
1999
ASSETS
Current Assets
Cash $ 94,000 $
58,000
Accounts receivable 235,000
227,000
Inventories 2,264,000
1,842,000
Prepaids and other assets 9,000
- --
Total Current Assets 2,602,000
2,127,000
Property and Equipment, at cost
Leasehold improvements 345,000
345,000
Furniture and equipment 170,000
163,000
515,000
508,000
Less: accumulated depreciation (126,000)
(62,000)
389,000
446,000
$ 2,991,000 $
2,573,000
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities
Accounts payable $ 420,000 $
376,000
Notes payable 319,000
52,000
Notes payable - related party 625,000
80,000
Retail flooring liability 2,123,000
1,788,000
Accrued expenses and other liabilities 194,000
327,000
Total Current Liabilities 3,681,000
2,623,000
Notes payable 31,000
50,000
3,712,000
2,673,000
Commitments and Contingencies
Members' deficit (721,000)
(100,000)
$ 2,991,000
$2,573,000
The accompanying notes are an integral part of these financial statements.
49
Housing Solutions LLC
Statements of Income
For the Years Ended October 31, 2000 and 1999, and
For the Period from Inception, August 31, 1998,
To October 31, 1998
2000 1999 1998
(Unaudited)
Sales $ 3,720,000 $ 3,912,000 $
77,000
Costs and expenses
Cost of sales 3,317,000 3,173,000
38,000
Selling, general and admin. expenses 823,000 813,000
110,000
4,140,000 3,986,000
148,000
Operating loss (420,000) (74,000)
(71,000)
Interest expense 201,000 149,000
6,000
Net loss $ (621,000) $ (223,000)
$
(77,000)
Members' (deficit) equity, beginning $ (100,000) $ 123,000
$
200,000
Members' (deficit) equity, ending $ (721,000) $ (100,000)
$
123,000
The accompanying notes are an integral part of these financial statements.
50
Housing Solutions LLC
Statements of Cash Flows
For the Years Ended October 31, 2000 and 1999, and
For the Period from Inception, August 31, 1998,
To October 31, 1998
2000 1999
1998
(Unaudited)
Cash Flows From Operating Activities:
Net loss $ (621,000) $ (223,000) $
(77,000)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 64,000 56,000
6,000
Changes in operating assets and liabilities:
Accounts receivable (8,000) (193,000)
(34,000)
Inventory (422,000) (1,251,000)
(591,000)
Prepaids and other assets (9,000) 20,000
(20,000)
Accounts payable 44,000 119,000
257,000
Retail flooring liability 335,000 1,159,000
629,000
Accrued expenses (133,000) 308,000
19,000
Net cash (used in) provided by operating
activities (750,000) (5,000)
189,000
Cash Flows Used In Investing Activities:
Purchase of property and equipment (7,000) (206,000)
(302,000)
Cash Flows From Financing Activities:
Proceeds from notes payable 300,000 111,000
- --
Payments on notes payable (52,000) (9,000)
- --
Proceeds from notes payable - related
party 545,000 80,000
- --
Capital contribution from members
200,000
Net cash provided by financing activities 793,000 182,000
200,000
Net (decrease) increase in cash 36,000 (29,000)
87,000
Cash at beginning of year 58,000 87,000
- --
Cash at end of year $ 94,000 $ 58,000
$
87,000
The accompanying notes are an integral part of these financial statements.
51
Housing Solutions LLC
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Business
Housing Solutions LLC (the "Company") is a retailer of manufactured
homes
with two sales centers located in Idaho.
Valuation of Inventories
Inventories are valued at the lower of cost or market, with cost
determined using the specific identification method for manufactured homes
and
the first-in, first-out method for all other items.
Property and Equipment
For financial reporting purposes, depreciation and amortization of
property, and equipment is generally provided for on a straight-line basis,
using estimated useful lives of 3 to 10 years for furniture and 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 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.
Revenue Recognition
Retail home sales consist of manufactured homes as well as installed
options and set-up and delivery. Retail home sales are recognized upon
passage of title and, in the case of credit sales (which represent the
majority of the Company's retail sales), upon the execution of the loan
agreement and other required documentation and receipt of a designated
minimum down payment.
For those sales in which the home remains personal property, rather than
being converted to real property (i.e., sales under retail installment
contracts), the closing (and subsequent revenue recognition) generally takes
place while the home is being delivered to and installed on the customer's
site. For such sales, delivery and installation typically are straightforward
and involve minimal preparation of the customer's site.
Sales transactions in which the home is converted from personal
property to real property are financed as traditional mortgages rather than
under retail installment contracts. Such sales typically involve significant
preparation of the customer's site, which may include installation of
utilities, wells, extensive foundations, etc., and also require completion of
mortgage financing documentation, including title searches and appraisals. As
a consequence, the closing (and subsequent revenue recognition) of these
transactions occurs after the home has been delivered and installed.
Income Taxes
The members have elected "limited liability corporation" status for
both federal and state income tax purposes. No provision for federal or
state income taxes has been made since any liability is that of the members.
52
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.
2. Retail Flooring Liability
Retail flooring liability represents amounts borrowed by the sales
centers to finance inventory purchases of manufactured homes. The entire
amount outstanding was financed under agreements with floor plan lenders that
provide for a security interest in the units financed and repayment at the
time the units are sold. Substantially all amounts outstanding bear interest
at the prime rate plus one to three percent (prime rate was 8.25% and 9.5% at
October 31, 2000 and 1999, respectively). Interest expense related to the
retail flooring liability for the years ended October 31, 2000 and 1999, and
for the period from inception, August 31 1998, to October 31, 1998, totaled
$171,000, $121,000 and $6,000 (unaudited), respectively.
3. Notes Payable
Notes payable and notes payable consist of the following at October 31,
2000 1999
Note payable to a bank bearing interest at
the prime rate plus 1%, interest payable in
monthly instalments, principal balance due
on demand on or before March 15, 2001,
outstanding balance guaranteed by members $300,000 $ --
Note payable to a bank bearing interest at
the prime rate plus 2%, interest payable in
monthly instalments, principal balance
due on demand and as was paid in 2000 --
35,000
Note payable to a bank bearing interest at
11%, principal and interest payable in
monthly instalments of $1,975 through May 2003 50,000
67,000
350,000
102,000
Less current portion (319,000)
(52,000)
$ 31,000 $
50,000
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Scheduled maturities of notes payable and notes payable outstanding at
October
31, 2000 are as follows:
2001 $319,000
2002 21,000
2003 10,000
$350,000
4. Related Party Transactions
The Company purchases primarily all manufactured homes inventory from a
related party (majority member owner). Such purchases totaled $3,739,000,
$5,053,000 and 629,000 (unaudited), respectively, for the years ended
October 31, 2000, 1999 and for the period from inception, August 31,
1998, to October 31, 1998. Accounts payable at October 31, 2000 and 1999
related to such purchases were $341,000 and $179,000, respectively.
The Company relies on its majority member owner for financial support
to fund operations and general working capital requirements. Borrowings from
this related party under various noninterest bearing notes, due on demand,
totaled $625,000 and $80,000 at October 31, 2000 and 1999, respectively. In
addition, the Company has obtained a letter of support from its majority
member owner, which commits this related party to provide such financial
support for a period of no less than twelve months from the most recent
balance sheet date, October 31, 2000.
5. Commitments and Contingencies
Lease Commitments
Future minimum rental commitments under noncancellable leases related
to building leases and an equipment leases at October 31, 2000 are as
follows:
2001 $ 66,000
2002 65,000
2003 25,000
$ 156,000
Rent expense for the years ended October 31, 2000 and 1999 and, for the
period from inception, August 31, 1998, to October 31, 1998 was $77,000,
$63,000 and $15,000 (unaudited), respectively.
Litigation
The Company is involved, from time to time, in various legal matters
which, when ultimately determined, will not, in the opinion of management,
have a material effect on the financial position, results of operations or
cash flows of the Company.
54
February 13, 2001
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
Attached is the EDGAR submission of Form 10-K for KIT Manufacturing Company
for
the fiscal year ended October 31, 2000, as required by the Securities and
Exchange Act of 1934.
Sincerely,
/s/Bruce K. Skinner
Bruce K. Skinner
Vice President & Treasurer