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, 1999
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, 1999.
Index to Exhibits - Page 12
1 of 12 Pages
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PART I
FINANCIAL INFORMATION
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<TABLE>
KIT MANUFACTURING COMPANY
CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months
Ended
July 31, July 31,
1999 1998 1999
1998
<S> <C> <C> <C> <C>
Sales $16,411 $15,328 $45,239 $45,979
Costs and expenses:
Cost of sales 14,468 13,727 40,234 41,962
Selling, general and
administrative expenses 1,650 1,485 4,284 4,097
16,118 15,212 44,518 46,059
Operating income (loss) 293 116 721 (80)
Other
Interest income 18 29 117 91
Interest expense (16) (29) (101) (70)
Equity in loss of retail sales
partnership (13) - (42) -
Income (loss) before income taxes 282 116 695 (59)
Provision (benefit) for income 170 42 311 (38)
taxes
(Note A)
Net income (loss) $ 112 $ 74 $ 384 $ (21)
Net income (loss) per share-
basic and diluted $ 0.10 $ 0.07 $ 0.35 $ (0.02)
(Note B)
Weighted-average shares 1,110,934 1,110,934 1,110,934 1,110,934
outstanding-
basic and diluted
(Note B)
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)
(Unaudited)
<CAPTION>
July 31 October 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and cash investments $ 4,268 $ 3,230
Accounts receivable, net 4,640 4,041
Inventories:
Raw materials 1,785 1,758
Work in process 628 685
Finished goods 385 2,378
Total inventories 2,798 4,821
Prepaids and income tax refunds 1,191 1,372
receivable
Total current assets 12,897 13,464
Property, plant and equipment, net 6,676 6,735
Other assets 121 152
Total assets $ 19,694 $ 20,351
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,407 $ 2,688
Accrued payroll and related items 927 1,587
Accrued marketing programs 442 718
Accrued expenses 1,289 1,610
Income taxes payable 496 -
Total current liabilities 5,561 6,603
Deferred income taxes 1,480 1,480
Total liabilities 7,041 8,083
Commitments and contingencies
Shareholders'equity
Common stock and additional paid-in
capital,
Issued and outstanding 1,110,934 1,592 1,592
shares
Retained earnings:
Balance at beginning of period 10,677 11,033
Net income (loss) for period 384 (357)
Balance at end of period 11,061 10,676
Total shareholders' equity 12,653 12,268
Total liabilities and shareholders' $ 19,694 $ 20,351
equity
<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,
1999 1998
<S> <C> <C>
Cash flow from operating activities:
Cash received from customers $ 44,641 $ 46,228
Interest received 117 91
Cash paid to suppliers and employees 43,631 47,662
Interest paid 101 70
Income taxes received (438) (1,266)
Net cash provided by (used in) operating 1,464 (147)
activities
Cash flow from investing activities:
Purchase of property, plant and equipment (476) (1,126)
Disposal of property, plant and equipment 103 333
Changes in other current and non-current (54) 215
assets
Net cash used in investing activities (427) (578)
Cash flow from financing activities:
Proceeds from line-of-credit borrowings 14,355 12,428
Principal payments on line-of-credit (14,355) (11,042)
borrowings
Net cash provided by financing activities 0 1,386
Net increase in cash 1,038 661
Cash at beginning of year 3,230 3,673
Cash at end of period $ 4,268 $ 4,334
Reconciliation of net income (loss) to net cash
Used in operating activities:
Net income (loss) $ 384 $ (21)
Adjustments to reconcile net income (loss) to
Net cash used in operating activities:
Depreciation 444 471
(Increase) decrease in accounts receivable (599) 249
Decrease (Increase) in inventories 2,023 (302)
Decrease in accounts payable and accrued (1,537) (1,771)
liabilities
Increase in income taxes payable 749 1,227
Net cash provided by (used in) operating $ 1,464 $ (147)
activities
<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 conducted
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) 131, "Disclosures
about Segments of an Enterprise and Related Information". Management
does not anticipate that the adoption of this standard will have a
significant effect on earnings or the financial position of the
Company.
Note H - Registrant leases general executive and administrative
offices in Long Beach, California. The lease has been renewed on these
facilities through March 14, 2001. At that time, per the lease
agreement, the lease may be renewed for another two years.
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<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION - JULY 31, 1999 COMPARED TO OCTOBER 31, 1998
Under third quarter market conditions, the Company liquidated its line
of credit through sales of finished goods. The Company's working
capital increased $475,000 due to the increase in cash and decline in
trade payables as result of the liquidation of inventories. The current
ratio improved to 2.3:1 at July 31, 1999 compared to 2.0:1 at October
31, 1998. The current ratio is the result of dividing current assets by
current liabilities. It is a financial measure that indicates the
ability of a company to pay its current obligations with its current
assets.
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, 1999 COMPARED TO QUARTER
ENDED JULY 31, 1998
Total sales for the quarter ended July 31, 1999 were $16,411,000, a 7%
increase from sales of $15,328,000 for the same quarter of the prior
year. The increase consisted of a 21% increase in manufactured housing
sales and a 3% 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. The RV modest sales decline was due to the the
model year changeover.
Cost of sales for the quarter ended July 31, 1999 was $14,468,000, a 5%
increase from $13,727,000 for the same quarter of the prior year, and a
1% decrease as a percent of sales . The resulting increase in gross
profit margins compared to the third quarter of fiscal 1998 is chiefly
attributed to the material and labor cost containments associated with
the controls over recreational vehicle and manufactured housing
production.
Selling, general and administrative expenses increased 12% during the
quarter to $1,663,000 compared to $1,485,000 for the same period of the
prior year. The increase was a result of the increase in sales as these
expenses for the comparable quarters remained at approximately 10% of
sales. This was due primarily to the continued controls over marketing
and overhead costs.
Interest income for the current quarter was $18,000 compared to $29,000
in the same quarter of the prior year. This was due to a decrease in
average short-term investments in conjunction with lower average rates
of return. Interest expense for the current quarter was $16,000
compared to $29,000 in the same quarter of the prior year. This change
was the result of a decrease in average borrowings.
The net income for the three months ended July 31, 1999 was $112,000,
or $0.10 per share, compared to net income of $74,000, or $0.07 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, 1999 COMPARED
TO NINE MONTHS ENDED JULY 31, 1998
Total sales for the nine months ended July 31, 1999 were
$45,239,000, a 2% decrease from sales of $45,979,000 for the same
period of the prior year. The decrease consisted of a 21%
increase in manufactured housing sales and an 18% 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 for the nine months ended July 31, 1999 were
$40,234,000, a 4% decrease from $41,962,000 for the same nine
months of the prior year, and a 2% decrease as a percent of
sales. This was 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 for the nine months
ended July 31, 1999 increased 5% to $4,284,000 compared to
$4,097,000 for the same period of the prior year, and remained at
approximately 9% of sales. This was due primarily to the
continued planned controls in marketing costs and overhead costs.
Interest income for the nine months ended July 31, 1999 was
$117,000 compared to $91,000 for the same nine months of the
prior year. Interest expense for the nine months ended July 31,
1999 was $101,000 compared to $70,000 for the same period of the
prior year. This was a result of an increase in average
short-term investments during the current period along with an
increase in average borrowings.
Net income for the nine months ended July 31, 1999 was $384,000,
or $0.35 per share, compared to a net loss of $21,000, or $0.02
per share, for the same nine months of the prior year.
The Company has instituted a program to determine whether its
computer information systems are able to interpret dates beyond
the year 1999 (the "Year 2000 Compliance Program") and has
implemented programming modifications to its main operational and
financial reporting systems that will address these issues. All
modified programming is currently operational. The Company
believes that its present computer information systems software
and hardware is Year 2000 compliant and intends to obtain
certification of such for any future purchases of computer
software and hardware.
The Company has evaluated its non-information technology systems,
which would include telephone equipment, time-keeping equipment
and surveillance equipment. The Company has determined that these
systems are Year 2000 compliant.
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<PAGE>
The Company is in the process of contacting its major suppliers,
service vendors and customers regarding Year 2000 compliance and
anticipates that
this phase of the Year 2000 Compliance Program will be completed
in fiscal 1999.
The total cost of the Year 2000 Compliance Program is not
expected to be material to the Company's financial position or
results of operations. To date, the Company has spent less than
$25,000 on Year 2000 compliance. The Company believes that the
cost of ensuring Year 2000 compliance for its own operational and
financial systems will be less than $50,000.
Although management believes the Company has an adequate plan to
be Year 2000 compliant, there can be no assurance that this
program will ultimately be successful. The Company believes that
it has sufficient resources to implement new and modified
computer systems and programming to address the Year 2000 issue,
and, accordingly, has not to date identified the need for any
contingency planning. However, the Company's ongoing assessment
of its financial and operations systems and non-information
technology systems may reveal the need for contingency planning
in the future.
To date, based on the progress of the Year 2000 Compliance
Program, management believes the Company's computer information
systems will be capable of interpreting dates beyond the year
1999 before fiscal year end. Also, management does not anticipate
any Year 2000 problems within its non-information technology
systems or from its suppliers, service vendors and customers
based on the data gathered during the compliance program testwork
completed.
In the unlikely event that the Year 2000 Compliance Program is
unsuccessful on some level (hardware or software), the Company's
personal
computer system (which has been tested and proven Year 2000
compliant) can assume all of the necessary duties to ensure that
the records and the computerized activitiy of the Company will
continue unobstructed.
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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, 1999.
- 10 -
<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 7/31/99 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
DATE 7/31/99 /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
- 12 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 4268000
<SECURITIES> 0
<RECEIVABLES> 4640000
<ALLOWANCES> 37000
<INVENTORY> 2798000
<CURRENT-ASSETS> 12897000
<PP&E> 6676000
<DEPRECIATION> 6323000
<TOTAL-ASSETS> 19694000
<CURRENT-LIABILITIES> 5561000
<BONDS> 0
0
0
<COMMON> 1592000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19694
<SALES> 16411000
<TOTAL-REVENUES> 16411000
<CGS> 14468000
<TOTAL-COSTS> 16118000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16000
<INCOME-PRETAX> 282000
<INCOME-TAX> 170000
<INCOME-CONTINUING> 112000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112000
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
