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, 1998 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,
1998.
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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $15,328 $20,811 $45,979 $60,534
Costs and expenses:
Cost of sales 13,727 19,944 41,962 57,309
Selling, general and
administrative expenses 1,485 1,590 4,097 5,675
15,212 21,534 46,059 62,984
Operating income (loss) 116 (723) (80) (2,450)
Other income
Interest income (expense), net - (18) 21 (86)
Income (loss) before income taxes 116 (741) (59) (2,536)
Expense (benefit) for income taxes
(Note A) 42 (304) (38) (1,040)
Net income (loss) $74 ($437) ($21) ($1,496)
Shares outstanding
(Note B) 1,110,934 1,110,934 1,110,934 1,110,934
Income (loss) before income taxes per share
(Note B) $0.10 ($0.67) ($0.05) ($2.28)
Net income (loss) per share
(Note B) $0.07 ($0.39) ($0.02) ($1.35)
Dividends per share $ - $ - $ - $ -
<FN>
<F1>The accompanying notes are an integral part of these financial statements
</FN>
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</TABLE>
<PAGE><TABLE>
KIT MANUFACTURING COMPANY
BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
July 31, October 31,
1998 1997
<S> <C> <C>
ASSETS
(Unaudited)
Cash and cash investments $4,334 $3,673
Accounts receivable, net 4,284 4,533
Inventories:
Raw materials 2,086 1,876
Work in process 672 907
Finished goods 946 619
Total inventories 3,704 3,402
Prepaids and income tax refunds receivable 1,508 2,632
Total current assets 13,830 14,240
Property, plant and equipment, net 6,842 6,844
Other assets 58 53
Total assets $20,730 $21,137
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $1,385
Accounts payable 2,297 $2,697
Accrued payroll and related items 1,186 1,604
Accrued marketing programs 704 809
Accrued expenses 1,067 1,915
Total current liabilities 6,639 7,025
Deferred income taxes 1,487 1,487
Total liabilities 8,126 8,512
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 11,033 13,345
Net loss for period (21) (2,312)
Balance at end of period 11,012 11,033
Total shareholders' equity 12,604 12,625
Total liabilities and shareholders' equity $20,730 $21,137
<FN>
<F1>The accompanying notes are an integral part of these financial statements
</FN>
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</TABLE>
<PAGE><TABLE>
KIT MANUFACTURING COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
For the nine months ended July 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $46,228 $63,806
Interest received 91 58
Cash received from operations 46,319 63,864
Cash paid to suppliers and employees 47,662 61,539
Interest paid 70 144
Income taxes (received) paid (1,266) 41
Cash disbursed for operations 46,466 61,724
Net cash provided by (used in) operating activities (147) 2,140
Cash flows from investing activities:
Purchase of property, plant and equipment (793) (936)
Changes in other current and non-current assets 215 23
Net cash used in investing activities (578) (913)
Cash flows from financing activities:
Proceeds from line-of-credit borrowings 12,428 12,374
Principal payments on line-of-credit borrowings (11,042) (12,374)
Net cash provided by financing activities 1,386 0
Net increase in cash 661 1,227
Cash at beginning of year 3,673 2,281
Cash at end of period $4,334 $3,508
Reconciliation of net loss to net cash used in operating
activities:
Net loss ($21) ($1,496)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 471 500
Decrease in accounts receivable 249 3,200
Increase (decrease) in inventories (302) 3,813
Decrease in accounts payable and accrued liabilities (1,771) (2,796)
Increase (decrease) in income taxes payable 1,227 (1,081)
Net cash provided by (used in) operating activities ($147) $2,140
<FN>
<F1>The accompanying notes are an integral part of these financial statements
</FN>
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</TABLE>
<PAGE>
KIT MANUFACTURING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note A - The provision or benefit 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. Options have not been included in the
computations because their effect would not be dilutive.
Note C - 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 D - The results of the period are not necessarily indicative of
annual results due to seasonality of the business.
Note E - Financial information contained herein is unaudited.
Note F - 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 G - The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income"; FAS 131, "Disclosures about Segments of an
Enterprise and Related Information"; FAS 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits"; FAS 133, "Accounting
for Derivative Instruments and Hedging Activities". Management does
not anticipate that the adoption of these standards will have a
significant effect on earnings or the financial position of the
Company.
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<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION - JULY 31, 1998 COMPARED TO OCTOBER 31, 1997
Under third quarter market conditions, the Company borrowed on its line
of credit to maintain its inventory levels to provide for anticipated
fourth quarter sales. The Company's working capital decreased $24,000 due
to the line of credit borrowings for inventory build-up. The current ratio
was 2.1:1 at July 31, 1998 compared to 2.0:1 at October 31, 1997.
The Company's liquidity position as reflected in the current ratio
described above, capital resources, including excess plant capacity,
working capital, and unused line of credit, are considered to be adequate
to provide for near term cash needs.
RESULTS OF OPERATIONS - QUARTER ENDED JULY 31, 1998 COMPARED TO QUARTER
ENDED JULY 31, 1997
Total sales for the quarter ended July 31, 1998 were $15,328,000, a 26%
decrease from sales of $20,811,000 for the same quarter of the prior year.
The decrease consisted of an 11% increase in manufactured housing sales
and a 41% decrease in recreational vehicle (RV) sales. Manufactured
housing sales increased due to increased marketing efforts, more
competitive product pricing, and continued offerings of a wide range of
products. RV sales decreased due to the continued shift to sales of lower
priced entry level products and the closure of the Kansas RV plant in
April 1998.
Cost of sales decreased 31% from the same quarter of the prior year and
decreased 6% as a percent of sales due primarily to the decline in sales
volume. The resulting increase in gross profit margins compared to the
third quarter of fiscal 1997 is chiefly attributed to the cost
containments associated with the successful introduction of the Company's
new RV models for the entry level market.
Selling, general and administrative expenses decreased 6% over the same
quarter of the prior year and increased 2% as a percent of sales. This was
due primarily to the continued planned reductions in marketing costs and
overhead costs.
Net interest expense for the current quarter was less than $1,000 compared
to net interest expense of $18,000 in the same quarter of the prior year.
This was a result of an increase in the average net short-term
investments.
The net income for the three months ended July 31, 1998 was $74,000, or
$0.07 per share, compared to net loss of $437,000, or $0.39 per share, for
the same quarter of the prior year.
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<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE
MONTHS ENDED JULY 31, 1997
Total sales for the nine months ended July 31, 1998 were $45,979,000, a
24% decrease from sales of $60,534,000 for the same period of the prior
year. The decrease consisted of a 12% increase in manufactured housing
sales and a 38% decrease in recreational vehicle (RV) sales. Manufactured
housing sales increased due to increased marketing efforts, more
competitive product pricing, and continued offerings of a wide range of
products. RV sales decreased due to the continued shift to sales of lower
priced entry level products and the closure of the Kansas RV plant in
April 1998.
Cost of sales decreased 27% from the same nine months of the prior year
and decreased 3% as a percent of sales due primarily to the decline in
sales volume. The resulting increase in gross profit margins compared to
the prior year is chiefly attributed to the cost containments associated
with the successful introduction of the Company's new RV models for the
entry level market.
Selling, general and administrative expenses decreased 28% over the same
nine months of the prior year and remained equivalent as a percent of
sales. This was due primarily to the continued planned reductions in
marketing costs and overhead costs.
Net interest income for the current nine months was $21,000 compared to
net interest expense of $86,000 in the same nine months of the prior year.
This was a result of an increase in the average net short-term investments
and lower average borrowing levels due to a decline in material purchases.
The net loss for the nine months ended July 31, 1998 was $21,000, or $0.02
per share, compared to net loss of $1,496,000, or $1.35 per share, for the
same nine months of the prior year.
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<PAGE>
PART II
OTHER INFORMATION
Item 6 (a).
See Index to Exhibits on page 10.
Item 6 (b).
Form 8-K was not required to be filed during the quarter ended July 31,
1998.
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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 7/31/98 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer and
President (Principal Executive
Officer)
DATE 7/31/98 /s/ Bruce K. Skinner
Bruce K. Skinner
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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<PAGE>
KIT MANUFACTURING COMPANY
INDEX TO EXHIBITS
Item:
(27) Financial Data Schedule
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC 10Q AND
IS QUALIFIED IN ITS INTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAY-1-1998
<PERIOD-END> JUL-31-1998
<CASH> 4334
<SECURITIES> 0
<RECEIVABLES> 4284
<ALLOWANCES> 0
<INVENTORY> 3704
<CURRENT-ASSETS> 13830
<PP&E> 6842
<DEPRECIATION> 471
<TOTAL-ASSETS> 20730
<CURRENT-LIABILITIES> 6639
<BONDS> 0
0
0
<COMMON> 1592
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20730
<SALES> 15328
<TOTAL-REVENUES> 15328
<CGS> 13727
<TOTAL-COSTS> 15212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 116
<INCOME-TAX> 42
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
