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 April 30, 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), 1,076,334 shares
outstanding as of April 30, 2000.
Index to Exhibits - Page 13
1 of 13 Pages
<PAGE>
PART I
FINANCIAL INFORMATION
2 -
<PAGE>
<TABLE>
KIT MANUFACTURING COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months
Ended
April 30, April 30,
2000 1999 2000
1999
<S> <C> <C> <C> <C>
Sales $14,908 $16,184 $25,874 $28,828
Costs and expenses:
Cost of sales 13,684 14,472 23,302 25,767
Selling, general and
administrative expenses 1,166 1,493 2,176 2,633
Equity in loss/(income) of
retail sales partnership 26 (4) 129 30
Operating income 32 223 267 398
Other:
Interest income 47 51 102 99
Interest expense (58) (49) (75) (84)
Gain on Sale of Property (Note 1,455 - 1,455 -
J)
Income before income taxes 1,476 225 1,749 413
Provision for income taxes
(Note A) 611 75 707 136
Net income $ 865 $ 150 $ 1042 $ 277
Net income per share-
basic and diluted $0.80 $ 0.14 $ 0.96 $ 0.25
(Note B)
Weighted-average shares 1,082,806 1,110,934 1,090,491 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 (34,600) (23) (26) (127) (176)
Net income 1,042 1,042
____________________________________________________
Balance, April 30, 2000 1,076,334 $727 $816 $11,964 $13,507
=====================================================
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
-3-
</TABLE>
<PAGE>
<TABLE>
KIT MANUFACTURING COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
April 30, October 31,
2000 1999
<S> <C> <C>
ASSETS
Cash and cash investments $ 5,370 $ 4,731
Accounts receivable, net 4,417 4,947
Inventories:
Raw materials 2,196 1,792
Work in process 677 654
Finished goods 1,323 8
Total inventories 4,196 2,454
Prepaids and other assets 881 269
Deferred income taxes 721 721
Total current assets 15,585 13,122
Property, plant and equipment, net 6,449 6,549
Other assets 163 90
Total assets $ 22,197 $ 19,761
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit $ 2,733 -
Accounts payable 1,631 $ 2,538
Accrued payroll and related items 936 1,191
Accrued marketing programs 69 402
Accrued expenses 1,430 1,515
Income taxes payable 417 -
Total current liabilities 7,216 5,646
Deferred income taxes 1,474 1,474
Total liabilities 8,690 7,120
Commitments and contingencies
Shareholders'equity
Common stock issued and outstanding 727 750
1,076,334 (April 30, 2000) and 1,110,934
(October 31, 1999) shares.
Additional paid-in capital 816 842
Retained earnings 11,964 11,049
Total shareholders' equity 13,507 12,641
Total liabilities and shareholders' $ 22,197 $ 19,761
equity
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
-4-
</TABLE>
<PAGE>
<TABLE>
KIT MANUFACTURING COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
For the six months ended April 30,
2000 1999
<S> <C> <C>
Cash flow from operating activities:
Cash received from customers $ 24,948 $ 28,033
Interest received 102 99
Rental income - 46
Cash paid to suppliers and employees (28,135) (29,007)
Interest paid (74) (84)
Income taxes paid (128) (1)
Net cash used in operating activities (3,287) (914)
Cash flow from investing activities:
Purchase of property, plant and equipment (298) (376)
Proceeds from disposal of property, plant
and equipment 1,667 18
Net cash used in investing activities 1,369 (358)
Cash flow from financing activities:
Proceeds from line-of-credit borrowings 9,123 11,046
Principal payments on line-of-credit
borrowings (6,390) (9,595)
Purchase of treasury stock (176) -
Net cash provided by financing activities 2,557 1,451
Net increase in cash 639 179
Cash at beginning of period 4,731 3,230
Cash at end of period $ 5,370 $ 3,409
Reconciliation of net income to net cash
used in operating activities:
Net income $ 1,042 $ 273
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 186 296
Gain on sale of property (1,455)
Equity in loss of retail sales partnership 129 30
Changes in operating assets and liabilities:
Accounts receivable 530 (749)
Inventories (1,742) 1,528
Prepaids and other assets (857) (215)
Accounts payable and accruals (1,699) (2,216)
Accrued income taxes 579 139
Net cash used in operating activities $ (3,287) $(914)
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE> - 5 -
<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. 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 April 30, 2000 and 1999 are ($119,000) and $56,000,
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 six-month
periods ended April 30, 2000 and 1999 is as follows:
Three Months Ended Six Months Ended
April 30, April 30,
(Dollars in Thousands) 2000 1999 2000 1999
Condensed Statement
of Income Information:
Sales $1,815 $666 $2,890 $1,341
Costs and expenses 1,852 660 3,074 1,383
Net (loss)/profit $ (37) $ 6 $ (184) $ (42)
- 6 -
<PAGE>
KIT MANUFACTURING COMPANY
NOTES TO CONDENSED 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 Six Months Ended
(Dollars in Thousands) April 30, April 30,
2000 1999 2000 1999
Sales
Manufactured housing $6,224 $7,393 $12,295 $14,951
Recreational vehicles 8,684 8,791 13,579 13,877
Total sales $14,908 $16,184 $25,874 $28,828
====== ====== ====== ======
Income/(loss) before income taxes
Operating income
Manufactured housing $ 129 $ 572 461 $1230
Recreational vehicles (97) (349) (194) (832)
Total operating income 32 223 267 398
Interest income 47 51 102 99
Interest expense (58) (49) (75) (84)
Gain on sale of
Property (Note J) 1,455 - 1,455 -
Income before income taxes 1,476 225 $ 1,749 $ 413
===== ===== ===== ====
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.
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.
- 7 -
<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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.
Note L - During February 2000, the Company entered into a sales
agreement to sell land and buildings located in McPherson, Kansas for
consideration of $1,200,000. The transaction is scheduled to close on
June 30, 2000.
- 8 -
<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION - APRIL 30, 2000 COMPARED TO OCTOBER 31, 1999
Under second quarter market conditions, the Company borrowed on its
line of credit to increase 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 $893,000 primarily due to the sale of the Chino, California
property. The current ratio decreased slightly to 2.2:1 at April 30,
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, including the proceeds from the
planned sale of the Kansas property, working capital, and $1,267,000
unused line of credit, are considered to be adequate to provide for
near term cash needs.
The decrease in accounts payable of $907,000 from $2,538,000 at October
31, 1999 compared to $1,631,000 at April 30, 2000 was due to the build-
up of recreational vehicle inventory in anticipation of second quarter
sales.
RESULTS OF OPERATIONS - QUARTER ENDED APRIL 30, 2000 COMPARED TO
QUARTER ENDED APRIL 30, 1999
Total sales for the quarter ended April 30, 2000 were $14,908,000, an
8% decrease from sales of $16,184,000 for the same quarter of the prior
year. The decrease consisted of a 16% decrease in manufactured housing
sales and a 1% 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. Also, strategically planned marketing continues to increase
sales of a wide range of high margin travel trailers.
Cost of sales for the quarter ended April 30, 2000 was $13,684,000, a
5% decrease from $14,472,000 for the same quarter of the prior year,
and a 2% increase as a percent of sales. The resulting decrease in
gross profit margins compared to the second quarter of fiscal 1999
is chiefly attributed to labor cost increases associated with
recreational vehicle production.
Selling, general and administrative expenses decreased 22% during the
quarter to $1,166,000, compared to $1,493,000 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 $47,000 compared to $51,000
in the same quarter of the prior year. This change was due primarily to
lower average rates of return on investments. Interest expense for the
current
-9-
<PAGE>
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
quarter was $58,000 compared to $49,000 in the same quarter of the
prior year. This change was the result of an increase in average short-
term interest rates.
The net income for the three months ended April 30, 2000 was $865,000,
or $0.80 per share, compared to net income of $150,000, or $0.14 per
share, for the same quarter of the prior year. The sale of property
in Chino, California contributed an after tax gain of $853,000 or
$0.79 per share.
RESULTS OF OPERATIONS - SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX
MONTHS ENDED APRIL 30, 1999
Total sales for the six months ended April 30, 2000 were $25,874,000, a
10% decrease from sales of $28,828,000 for the same period of the prior
year. The decrease consisted of an 18% 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. The RV division continues to improve its selling
margins and operating results through improved production cost controls
and efficiencies. In addition, strategically planned marketing
continues to increase sales of a wide range of high margin travel
trailers.
Cost of sales for the six months ended April 30, 2000 were $23,302,000,
a 10% decrease from $25,767,000 for the same six months of the prior
year, and a 1% increase as a percent of sales. This was due primarily
to the decline in sales volume, coupled with relatively unchanged
overhead costs.
Selling, general and administrative expenses for the six months ended
April 30, 2000 decreased 17% to $2,176,000 compared to $2,633,000 for
the same period of the prior year, and decreased to approximately 8% of
sales. This was due primarily to the continued planned reductions in
marketing and administrative costs.
Interest income for the six months ended April 30, 2000 was $102,000
compared to $99,000 for the same six months of the prior year.
Interest expense for the six months ended April 30, 2000 was $75,000
compared to $84,000 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 a decrease in average borrowings.
Net income for the six months ended April 30, 2000 was $1,042,000, or
$0.96 per share, compared to net income of $277,000, or $0.25 per
share, for the same six months of the prior year. The sale of property
in Chino, California contributed an after tax gain of $853,000 or $0.78
per share.
-10-
<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
April 30, 2000.
- 11 -
<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 6/14/00 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
DATE 6/14/00 /s/ Bruce K. Skinner
Bruce K. Skinner
Vice President and Treasurer
(Principal Financial and Accounting Officer)
- 12 -
<PAGE>
KIT MANUFACTURING COMPANY
INDEX TO EXHIBITS
Item:
(27) Financial Data Schedule
-13-
<PAGE>
