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, 2000
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), 1,027,334 shares
outstanding as of July 31, 2000.
Index to Exhibits - Page 13
1 of 13 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,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $13,559 $16,411 $39,433 $45,239
Costs and expenses:
Cost of sales 12,585 14,468 35,887 40,234
Selling, general and
administrative expenses 1,391 1,650 3,567 4,284
Equity in loss of retail
sales partnership 135 13 264 42
Operating (loss) income (552) 280 (285) 679
Other:
Interest income 75 18 177 117
Interest expense (53) (16) (128) (101)
Gain on sale of property (Note J) 621 - 2,076 -
Income before income taxes 91 282 1,840 695
Provision for income taxes
(Note A) 38 170 745 311
Net income $ 53 $ 112 $ 1,095 $ 384
Net income per share-
basic and diluted $0.05 $ 0.10 $ 1.02 $ 0.35
(Note B)
Weighted-average shares 1,047,261 1,110,934 1,070,710 1,110,934
outstanding-
basic and diluted
(Note B)
Dividends per share $ - $ - $ - $ -
STATEMENT OF SHARHOLDERS'EQUITY
(Dollars in thousands)
(Unaudited)
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings Total
Balance, October 31, 1999 1,110,934 $750 $842 $11,049 $12,641
Purchase of treasury stock (83,600) (58) (65) (376) (499)
Net income 1,095 1,095
_______ _____ _____ _______ _______
Balance, July 31, 2000 1,027,334 $692 $777 $11,768 $13,237
======== ===== ===== ====== =======
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
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</TABLE>
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<TABLE>
KIT MANUFACTURING COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
July 31, October 31,
2000 1999
<S> <C> <C>
ASSETS
Cash and cash investments $ 6,778 $ 4,731
Accounts receivable, net 4,123 4,947
Inventories:
Raw materials 2,357 1,792
Work in process 552 654
Finished goods 560 8
Total inventories 3,469 2,454
Prepaids and other assets 344 269
Deferred income taxes 721 721
Total current assets 15,435 13,122
Property, plant and equipment, net 5,782 6,549
Other assets 265 90
Total assets $ 21,482 $ 19,761
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit $ 2,592 -
Accounts payable 1,123 $ 2,538
Accrued payroll and related items 810 1,191
Accrued marketing programs 316 402
Accrued expenses 1,474 1,515
Income taxes payable 456 -
Total current liabilities 6,771 5,646
Deferred income taxes 1,474 1,474
Total liabilities 8,245 7,120
Commitments and contingencies
Shareholders'equity
Common stock issued and outstanding 692 750
1,027,334 (July 31, 2000) and 1,110,934
(October 31, 1999) shares.
Additional paid-in capital 777 842
Retained earnings 11,768 11,049
Total shareholders' equity 13,237 12,641
Total liabilities and shareholders' $ 21,482 $ 19,761
equity
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
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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,
2000 1999
<S> <C> <C>
Cash flow from operating activities:
Cash received from customers $ 38,132 $ 44,582
Interest received 177 118
Rental income - 58
Cash paid to suppliers and employees (40,607) (43,672)
Interest paid (128) (101)
Income taxes (paid) received (127) 438
Net cash (used in) provided by operating (2,553) 1,423
activities
Cash flow from investing activities:
Purchase of property, plant and equipment (389) (410)
Proceeds from disposal of property, plant
and equipment 2,921 25
Advances to retail sales partnership (25) -
Net cash provided by (used in) investing 2,507 (385)
activities
Cash flow from financing activities:
Proceeds from line-of-credit borrowings 12,855 14,355
Principal payments on line-of-credit (10,263) (14,355)
borrowings
Purchase of treasury stock (499) -
Net cash provided by financing activities 2,093 -0-
Net increase in cash 2,047 1,038
Cash at beginning of period 4,731 3,230
Cash at end of period $ 6,778 $ 4,268
Reconciliation of net income to net cash
used in operating activities:
Net income $ 1,095 $ 384
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 311 444
Gain on sale of property (2,076) -
Equity in loss of retail sales partnership 264 42
Changes in operating assets and liabilities:
Accounts receivable 824 (599)
Inventories (1,015) 2,023
Prepaids and other assets (422) (83)
Accounts payable and accruals (2,152) (1,537)
Accrued income taxes 618 749
Net cash (used in) provided by operating $ (2,553) $1,423
activities
<FN>
<F1>The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE> - 5 -
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KIT MANUFACTURING COMPANY
NOTES TO 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. Certain
amounts in prior period financial statements have been reclassified to
conform to current period presentation.
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 Company's investment in and advances to the retail sales
partnership as of July 31, 2000 and 1999 are ($229,000) and $44,000,
respectively, and are included as a component of accrued liabilities
and other assets, respectively. The condensed unaudited financial
information
of the partnership for the three-month and nine-month periods ended
July 31, 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
(Dollars in Thousands) 2000 1999 2000 1999
Condensed Statement
of Income Information:
Sales $466 $1,252 $3,356 $2,592
Costs and expenses 659 1,270 3,733 2,652
Net (loss)/profit $(193) $ (18) $ (377) $ (60)
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KIT MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note H - The Company evaluates the performance of its operating segments
based on operating income or losses. Each segment records direct expenses
related and allocable to its employees. The Company does not allocate income
taxes, interest income or interest expense 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 period or period-end presented.
Three Months Ended Nine Months Ended
(Dollars in Thousands) July 31, July 31,
2000 1999 2000 1999
Sales
Manufactured housing $5,385 $8,042 $17,679 $22,993
Recreational vehicles 8,174 8,369 21,754 22,246
Total sales $13,559 $16,411 $39,433 $45,239
====== ====== ====== ======
Income/(loss) before income taxes
Operating (loss) income
Manufactured housing $ (268) $ 644 $194 $1,875
Recreational vehicles (284) (364) (479) (1,196)
Total operating (loss) income(552) 280 (285) 679
Interest income 75 18 177 117
Interest expense (53) (16) (128) (101)
Gain on sale of
Property (Note J) 621 - 2,076 -
Income before income taxes $91 $ 282 $ 1,840 $ 695
===== ===== ===== ====
Note I - On September 14, 1999, the Board of Directors authorized the Company
to repurchase up to 100,000 common shares on the open market during a period
of not more than 12 months. The 100,000 common shares authorized for
repurchase represent 9% of the outstanding common stock of the Company.
The Company plans to purchase the shares from time to time, depending
on market conditions. During the quarter ended January 31, 2000, the
Company repurchased 26,700 common shares. During the quarter ended
April 30, 2000, the Company repurchased 7,900 common shares. During the
quarter ended July 31, 2000, the Company repurchased 49,000 common
shares.
Note J - During February 2000, the Company sold land and buildings
located in Chino, California for consideration of $1,685,000, resulting
in a gain of $1,455,000. During June 2000, the Company sold land and
buildings located in McPherson, Kansas for consideration of $1,285,000,
resulting in a gain of $621,000. Therefore, the total gain resulting
from these two sales is $2,076,000.
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KIT MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note K - On December 15, 1998, the Company was named as a defendant in
a lawsuit filed by one of its former dealers seeking damages for breach
of contract. In May of 2000, a jury awarded the plaintiff $250,000 in
damages. The verdict is currently under appeal. The outcome of the
appeal is not known at this time but the Company intends to defend its
position vigorously.
The Company was served on May 16, 2000 with a class-action lawsuit
filed by certain former employees. The suit arose as a result of the
closure of our plant facilities in McPherson, Kansas and the
plaintiff's contention that the Company failed to provide a 60-day
advance termination notice as required under federal law. The Company
believes that it has substantial defenses to this action but is unable
to assess the merits of the case since it has just recently been filed
and no discovery has occurred.
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<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION - JULY 31, 2000 COMPARED TO OCTOBER 31, 1999
Under third quarter market conditions, the Company borrowed on its line
of credit to maintain its inventory levels to provide for anticipated
third quarter sales and to pay down certain current liabilities,
including accounts payable. The Company's working capital increased
$1,417,000 primarily due to the sale of the Chino, California, and
McPherson, Kansas properties. The current ratio increased slightly to
2.4:1 at July 31, 2000 compared to 2.3:1 at October 31, 1999. 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, working capital, and $1,408,000
unused line of credit, is considered to be adequate to provide for near
term cash needs.
RESULTS OF OPERATIONS - QUARTER ENDED JULY 31, 2000 COMPARED TO QUARTER
ENDED JULY 31, 1999
Total sales for the quarter ended July 31, 2000 were $13,559,000, a 17%
decrease from sales of $16,411,000 for the same quarter of the prior
year.The decrease consisted of a 33% decrease in manufactured housing sales
and a 2% decrease in recreational vehicle (RV) sales. The decrease in
sales continues to be affected by industry-wide excess inventory
levels, lenders' tightened credit standards, and rising interest rates.
In addition, although there was also a decline in RV sales, this
division, with its successful product lines now available, will
continue to focus on the expansion of its market share.
Cost of sales for the quarter ended July 31, 2000 was $12,585,000, a
13% decrease from cost of sales of $14,468,000 for the same quarter of
the prior year, and a 5% increase as a percent of sales. The resulting
decrease in gross profit margins compared to the third quarter of
fiscal 1999 is chiefly attributed to increased sales of lower margin
recreational vehicle products.
Selling, general and administrative expenses decreased 16% during the
quarter to $1,391,000, compared to $1,650,000 for the same period of the
prior year. The decrease was due primarily to the continued controls over
marketing and overhead costs.
Interest income for the current quarter was $75,000 compared to $18,000 in
the same quarter of the prior year. The increase was due primarily to
an increase in average balances of invested funds (from the proceeds of
the sales of the Chino, California, and McPherson, Kansas properties),
compared to the same quarter of the prior year. Interest expense for
the current
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KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
quarter was $53,000 compared to $16,000 in the same quarter of the
prior year. This change was primarily the result of an increase in
average short-term borrowings.
The net income for the three months ended July 31, 2000 was $53,000, or
$0.05 per share, compared to net income of $112,000, or $0.10 per
share, for the same quarter of the prior year. The sale of property in
McPherson, Kansas contributed an after tax gain of $402,000 or $0.38 per
share.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JULY 31, 2000 COMPARED TO
NINE MONTHS ENDED JULY 31, 1999
Total sales for the nine months ended July 31, 2000 were $39,433,000, a
13% decrease from sales of $45,239,000 for the same period of the prior
year. The decrease consisted of a 23% decrease in manufactured housing
sales and a 2% decrease in recreational vehicle (RV) sales. The
decrease in sales continues to be affected by industry-wide excess
inventory levels, lenders' tightened credit standards, and rising
interest rates.
Cost of sales for the nine months ended July 31, 2000 were $35,887,000,
an 11% decrease from cost of sales of $40,234,000 for the same nine
months of the prior year, and a 2% increase as a percent of sales. The
dollar decline was due primarily to the decline in sales volume, while
the increase as a percent of sales was due to sales of lower margin
RV's.
Selling, general and administrative expenses for the nine months ended
July 31, 2000 decreased 17% to $3,567,000 compared to $4,284,000 for
the same period of the prior year, and remained consistent at
approximately 9% of sales. The dollar decrease was due primarily to the
continued planned reductions in marketing and administrative costs.
Interest income for the nine months ended July 31, 2000 was $177,000
compared to $117,000 for the same nine months of the prior year.
Interest expense for the nine months ended July 31, 2000 was $128,000
compared to $101,000 for the same period of the prior year. This was a
result of an increase in the average net short-term investments during
the current period along with an increase in average short-term
borrowings.
Net income for the nine months ended July 31, 2000 was $1,095,000, or
$1.02 per share, compared to net income of $384,000, or $0.35 per
share, for the same nine months of the prior year. The sale of
properties in Chino, California, and McPherson, Kansas contributed an
after tax gain of $1,255,000 or $1.17 per share.
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<PAGE>
PART II
OTHER INFORMATION
Item 6 (a).
See Index to Exhibits on page 12.
Item 6 (b).
Form 8-K was not required to be filed during the quarter ended
July 31, 2000.
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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 9/11/00 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
DATE 9/11/00 /s/ Bruce K. Skinner
Bruce K. Skinner
Vice President and Treasurer
(Principal Financial and Accounting Officer)
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KIT MANUFACTURING COMPANY
INDEX TO EXHIBITS
Item:
(27) Financial Data Schedule
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