FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended July 31, 1997 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,P.O. Box 848,Long Beach,California 90801
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (562) 595-7451
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report. Common Stock (no par value), 1,110,934 shares
outstanding as of July 31, 1997.
Index to Exhibits - Page 11
1 of 11 Pages
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PART I
FINANCIAL INFORMATION
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<TABLE>
KIT MANUFACTURING COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $20,811 $23,924 $60,534 $70,575
Costs and expenses
Cost of sales 19,944 20,718 57,309 61,965
Selling, general and
administrative expenses 1,590 2,413 5,675 6,939
21,534 23,131 62,984 68,904
Operating (loss) income (723) 793 (2,450) 1,671
Other (expense) income:
Proceeds from business interruption claim 610 610
(Note I)
Interest (expense) income, net (18) 12 (86) (15)
(Loss) income before income taxes (741) 1,415 (2,536) 2,266
(Benefit) provision for income taxes (304) 589 (1,040) 929
Net (loss) income ($437) $826 ($1,496) $1,337
Shares outstanding
(Note B) 1,110,934 1,110,934 1,110,934 1,110,934
Net (loss) income per share ($0.39) $0.74 ($1.35) $1.20
Dividends per share $ - $ - $ - $ -
The accompanying notes are an integral part of these financial statements
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</TABLE>
<PAGE>
<TABLE>
KIT MANUFACTURING COMPANY
BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
July 31, October 31,
1997 1996
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash investments $3,508 $2,281
Accounts receivable, net 4,826 8,026
Inventories:
Raw materials 2,130 3,424
Work in process 545 1,234
Finished goods 681 2,511
Total inventories 3,356 7,169
Prepaids and deferred income taxes 1,177 1,241
Income tax refund receivable 1,057 -
Total current assets 13,924 18,717
Property, plant and equipment, net 6,843 6,319
Other assets 57 103
Total assets $20,824 $25,139
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $2,251 $3,685
Accrued payroll and related items 1,503 2,256
Accrued marketing programs 1,041 1,104
Accrued expenses 1,119 1,664
Income taxes payable - 24
Total current liabilities 5,914 8,733
Deferred income taxes 1,469 1,469
Total liabilities 7,383 10,202
Commitments and contingencies
Shareholders' equity
Common stock and additional paid-in capital,
issued and outstanding 1,110,934 shares 1,592 1,592
Retained earnings:
Balance at beginning of period 13,345 11,914
Net (loss) income for period (1,496) 1,431
Balance at end of period 11,849 13,345
Total shareholders' equity 13,441 14,937
Total liabilities and shareholders' equity $20,824 $25,139
The accompanying notes are an integral part of these financial statements
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</TABLE>
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<TABLE>
KIT MANUFACTURING COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
For the nine months ended
July 31,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Cash received from customers $63,664 $72,974
Rental income and insurance proceeds 142
Interest received 58 28
Cash received from operations 63,864 73,002
Cash paid to suppliers and employees 61,539 72,977
Interest paid 144 43
Income taxes paid 41 802
Cash disbursed for operations 61,724 73,822
Net cash provided by (used in) operating activities 2,140 (820)
Cash flows from investing activities:
Purchase of property, plant and equipment (936) (252)
Changes in other current and non-current assets 23 68
Net cash used in investing activities (913) (184)
Cash flows from financing activities:
Proceeds from business interruption claim 610
Proceeds from line-of-credit borrowings 12,374 2,700
Principal payments on line-of-credit borrowings (12,374) (1,600)
Net cash provided by financing activities 0 1,710
Net increase in cash 1,227 706
Cash at beginning of year 2,281 2,218
Cash at end of period $3,508 $2,924
Reconciliation of net income to net cash provided by (used in) operating
activities:
Net (loss) income ($1,496) $1,337
Adjustments to reconcile net income to net cash used in operating activities:
Proceeds from business interruption claim (610)
Depreciation 500 495
Decrease in accounts receivable 3,200 2,197
Decrease (increase) in inventories 3,813 (4,124)
Decrease in accounts payable and accrued liabilities (2,796) (242)
(Decrease) increase in income taxes (1,081) 127
Net cash provided by (used in) operating activities $2,140 ($820)
The accompanying notes are an integral part of these financial statements
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</TABLE>
<PAGE>
KIT MANUFACTURING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - The benefit or provision for income taxes is calculated
using the Company's estimated annual effective tax rate.
Note B - Per share amounts are based on the weighted average
number of common shares outstanding. Common stock equivalents
have not been included in the computations because their effect
would not be dilutive.
Note C - During the period reported on, there were no sales of
securities.
Note D - In the opinion of management, all material adjustments
which are necessary for a fair statement of financial position,
results of operations and cash flows have been included in these
financial statements.
Note E - The results of the period are not necessarily indicative
of annual results due to seasonality of the business.
Note F - Financial information contained herein is unaudited.
Note G - The Company is contingently liable to various financial
institutions on repurchase agreements in connection with wholesale
inventory financing. In general, inventory is repurchased by the
Company upon default by a dealer with a financing institution and
then resold through normal distribution channels. In addition,
the Company is contingently liable to financial institutions for
letters of credit which were established to satisfy the self-insured workers'
compensation regulations of the states in which the Company conducts
manufacturing operations.
Management does not expect that losses, if any, from the
contingencies described above will be of material importance to
the financial condition or earnings of the Company.
Note H -In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share. FAS 128 specifies the computation,
presentation, and disclosure requirements for EPS. FAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Management has
assessed that the impact of adopting this standard will have no
effect on EPS.
Note I - During the third quarter of fiscal 1996, the Company
received $610,000 in insurance proceeds on a business interruption
claim relative to the 1992 tornado damage at the McPherson, Kansas
manufactured housing facility.
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<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION -JULY 31, 1997 COMPARED TO OCTOBER 31, 1996
Under third quarter market conditions, the Company continued to borrow
on its line of credit to maintain inventory levels to provide for the
anticipated third quarter sales. The Company's working capital
decreased $1,974,000 due primarily to decreases in accounts
receivable, inventories and accounts payable. The current ratio was
2.4:1 at July 31, 1997 and 2.1:1 at October 31, 1996.
The Company's liquidity position as reflected in the current ratio
described above, capital resources, including excess plant capacity,
working capital, and line of credit, are considered to be adequate to
provide for near term anticipated growth.
RESULTS OF OPERATIONS - QUARTER ENDED JULY 31, 1997 COMPARED TO
QUARTER ENDED JULY 31, 1996
Total sales for the quarter ended July 31, 1997 were $20,811,000, a 13
percent decrease from sales of $23,924,000 for the same quarter of the
prior year. The decrease consisted of a 20 percent decrease in
recreational vehicle sales and an increase of 11 percent in
manufactured housing sales. RV sales saw a decrease as a result of a
slowing in retail market conditions and an increase in competitive
pricing pressures. Manufactured housing is continuing to experience
the results of a general resurgence in the housing market in our sales
territories.
Cost of sales decreased 4 percent from the same quarter of the prior
year due primarily to the decline in sales but increased 10 percent as
a percent of sales. The decrease in gross profit margins is chiefly
attributed to increased sales of lower margin recreational vehicles in
the third quarter.
Selling, general and administrative expenses decreased 34 percent over
the same quarter of the prior year and declined more than 2 percent as
a percent of sales. The decrease was due to a decrease in marketing
costs.
Net interest expense of $18,000 as compared to net interest income of
$12,000 was the result of a significant increase in the average net
short-term borrowings. The Company maintained its inventories at a
level lower than the prior year's quarter but sales for the quarter
were slower than the same period in fiscal 1996.
The net loss for the three months ended July 31, 1997 was $437,000, or
$0.39 per share, compared to net income of $826,000, or $0.74 per
share, for the same quarter of the prior year. The quarter ended July
31, 1996 includes a gain on a business interruption claim of $373,000,
net of related income taxes, or $0.34 per share.
-7-
<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS ENDED JULY 31, 1997 COMPARED TO
NINE MONTHS ENDED JULY 31, 1996
Total sales for the nine months ended July 31, 1997 were $60,534,000,
a 14 percent decrease from sales of $70,575,000 for the same quarter
of the prior year. The decrease consisted of a 23 percent decrease in
recreational vehicle sales and a 20 percent increase in manufactured
housing sales. RV sales both in the Midwestern and Western sales
regions saw a decrease due to a significant decline in consumer demand
during the severe winter and spring weather conditions. In addition,
extreme price competion in the third quarter caused many potential
dealers to shift their inventory demands. The manufactured housing
sales increase was chiefly the result of a rise in consumer demand for
manufactured homes as well as an increase in the number of dealers in
our retail network.
Cost of sales decreased 8 percent from the same period of the prior
year due to the 14 percent decline in sales, but increased 7 percent
as a percent of sales. The decline in gross profit margins is chiefly
attributable to increased sales of lower margin recreational vehicle
units in comparison to the same period in fiscal 1996.
Selling, general and administrative expenses decreased 18 percent over
the same period of the prior year and declined less than one percent
as a percent of sales. The decrease was primarily due to decreases in
marketing costs.
Net interest expense increased 473 percent over the same period in
fiscal 1996. This was a consequence of a significant increase in the
average net short-term borrowing.
The net loss for the six months ended July 31, 1997 was $1,496,000, or
$1.35 per share, compared to net income of $1,337,000, or $1.20 per
share, for the same period of the prior year. Fiscal 1996 year to date
net income includes a gain on a business interruption claim of
$373,000, net of related income taxes, or $0.34 per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share. FAS 128 specifies the computation, presentation, and
disclosure requirements for EPS. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods. Management has assessed that the impact of
adopting this standard will have no effect on EPS.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" to be effective in
1998. This Statement establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. Management has not assessed the impact
of adopting this standard.
Also in June 1997, FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" to be effective in
1998. This Statement requires that public business enterprises
report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. Management has
not assessed the impact of adopting this standard.
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<PAGE>
PART II
OTHER INFORMATION
Item 6 (a).
See Index to Exhibits on page 11.
Item 6 (b).
Form 8-K was not required to be filed during the quarter
ended July 31, 1997.
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
KIT MANUFACTURING COMPANY
(Registrant)
DATE September 9, 1997 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
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<PAGE>
KIT MANUFACTURING COMPANY
INDEX TO EXHIBITS
Item:
(27) Financial Data Schedule
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 451,000
<SECURITIES> 3,057,000
<RECEIVABLES> 4,783,000
<ALLOWANCES> 43,000
<INVENTORY> 3,356,000
<CURRENT-ASSETS> 13,864,000
<PP&E> 11,674,000
<DEPRECIATION> 5,742,000
<TOTAL-ASSETS> 20,764,000
<CURRENT-LIABILITIES> 5,914,000
<BONDS> 0
0
0
<COMMON> 1,592,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,764,000
<SALES> 20,811,000
<TOTAL-REVENUES> 20,811,000
<CGS> 19,944,000
<TOTAL-COSTS> 19,944,000
<OTHER-EXPENSES> 1,608,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,000
<INCOME-PRETAX> (741,000)
<INCOME-TAX> (304,000)
<INCOME-CONTINUING> (437,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (437,000)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
