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 January 31, 2001
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
January 31, 2001.
1 of 12 Pages
PART I
FINANCIAL INFORMATION
- - 2 -
KIT MANUFACTURING COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
January 31,
2001 2000
Sales
$6,225
$10,482
Sales to retail sales partnership
528
484
Costs and expenses:
Cost of sales
6,662
9,255
Cost of sales to retail sales
partnership
397
363
Selling, general and
administrative expenses
1,098
1,010
Equity in loss of retail
sales partnership
52
103
Operating (loss) income
(1,456)
235
Other income (expense)
Interest income
71
55
Interest expense
(69)
(17)
(Loss) income before income taxes
(1,454)
273
(Benefit) provision for income taxes
(Note A)
(588)
96
Net (loss) income
$ (866)
$ 177
Net (loss) income per share-
basic and diluted
($0.84)
$ 0.16
(Note B)
Weighted-average shares outstanding-
1,027,334
1,098,124
basic and diluted
(Note B)
Dividends per share
$ -
$ -
STATEMENT OF SHAREHOLDERS'EQUITY
(Dollars in thousands)
(Unaudited)
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings
Total
Balance, October 31, 2000 1,027,334 $694 $775 $10,403
$11,872
Net loss (866)
(866)
_______ _____ _____ _______
_______
Balance, January 31, 2001 1,027,334 $694 $775 $ 9,537
$11,006
======== ===== ===== ======
=======
<FN>
<F1>The accompanying notes are an integral part of these financial
statements. </FN>
- -3-
KIT MANUFACTURING COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
January 31, October
31,
2001 2000
ASSETS
Cash and cash investments
$ 7,145
$ 4,489
Accounts receivable, net
2,634
2,446
Accounts receivable from retail sales
partnership
466
341
Inventories:
Raw materials
1,902
1,664
Work in process
615
597
Finished goods
715
537
Total inventories
3,232
2,798
Prepaids and other assets
832
324
Deferred income taxes
1,025
1,025
Total current assets
15,334
11,423
Property, plant and equipment, net
5,502
5,637
Other assets
286
286
Total assets
$ 21,122
$ 17,346
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit
$ 3,979
-
Accounts payable
1,840
$ 818
Accrued payroll and related items
760
903
Accrued marketing programs
434
471
Accrued expenses
1,533
1,699
Total current liabilities
8,546
3,891
Deferred income taxes
1,487
1,487
Losses in excess of investments in and
advances to retail sales partnership
83
96
Total liabilities
10,116
5,474
Commitments and contingencies
Shareholders'equity
Common stock issued and outstanding
1,027,334 (January 31, 2001) and 1,110,934
(October 31, 2000) shares.
694
694
Additional paid-in capital
775
775
Retained earnings
9,537
10,403
Total shareholders' equity
11,006
11,872
Total liabilities and shareholders' equity
$ 21,122
$ 17,346
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
- -4-
KIT MANUFACTURING COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the three months ended
January 31,
2001 2000
Cash flow from operating activities:
Cash received from customers
$ 6,531
$ 12,669
Interest received
71
55
Cash paid to suppliers and employees
(7,787)
(15,499)
Interest paid
(69)
(17)
Income taxes paid
(1)
-
Net cash used in operating activities
(1,255)
(2,792)
Cash flow from investing activities:
Purchase of property, plant and equipment
(3)
(236)
Advances to retail sales partnership
(65)
-
Net cash used in investing activities
(68)
(236)
Cash flow from financing activities:
Proceeds from line-of-credit borrowings
4,822
4,087
Principal payments on line-of-credit borrowings
(843)
(1,988)
Purchase of treasury stock
-
(126)
Net cash provided by financing activities
3,979
1,973
Net increase (decrease) in cash
2,656
(1,055)
Cash at beginning of period
4,489
4,731
Cash at end of period
$ 7,145
$ 3,676
Reconciliation of net (loss) income to net cash
used in operating activities:
Net (loss) income
$ (866)
$ 177
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation
138
59
Equity in loss of retail sales partnership
52
103
Changes in operating assets and liabilities:
Accounts receivable
(313)
1,702
Inventories
(434)
(2,154)
Prepaids and other assets
81
(629)
Accounts payable and accruals
676
(2,146)
Accrued income taxes
(589)
96
Net cash used in operating activities
$ (1,255)
$(2,792)
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
- 5 -
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, net of the Company's pro rata share of cumulative equity in
losses, is reflected as a noncurrent liability totaling $83,000 and
$96,000 at January 31, 2001 and October 31, 2000, respectively. The
retail sales partnership has reflected all advances from the Company as
a component of current liabilities equal to $690,000 and $80,000 at
January 31, 2001 and October 31, 2000, respectively. The condensed
unaudited financial information of the partnership is as follows:
- - 6 -
KIT MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
January 31,
(Dollars in Thousands) 2001 2000
Condensed Statement
of Income Information:
Sales $1,156 $1,075
Cost of sales 952 959
Selling, general and administrative expenses 188 229
Interest expense 68 50
Net loss $ (52) $(163)
January 31, October 31,
2001 2000
Condensed Balance Sheet Information:
Current assets $2,773 $2,601
Noncurrent assets 373 390
$3,146 $2,991
Current liabilities $3,891 $3,662
Noncurrent liabilities 28 50
Members' deficit (773) (721)
$3,146 $2,991
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 for any period presented. Except for the retail
sales partnership, no individual customer accounted for greater than 10%
of net accounts receivable for period-end presented.
Three Months Ended
(Dollars in Thousands) January 31,
2001 2000
Sales
Manufactured homes $ 3,026 $ 6,071
Recreational vehicles 3,727 4,895
Total sales $ 6,753 $10,966
Income/(loss) before income taxes
Operating (loss) income
Manufactured homes $ (644) $ 332
Recreational vehicles (812) (97)
Total operating (loss) income (1,456) 235
Interest income 71 55
Interest expense (69) (17)
(Loss) income before income taxes $(1,454) $ 273
===== ====
- - 7 -
KIT MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note I On December 15, 1998, the Company was named as a defendant in a
lawsuit filed by one of its former dealers. A jury awarded the plaintiff
$370,000 in damages, however, the verdict is currently under appeal with
the Idaho State Supreme Court. The outcome of the appeal is not known
at this time but the Company intends to defend it position vigorously.
The Company, in its normal course of business is party to other pending
lawsuits or may be subject to other threatened lawsuits. While the
outcome of pending or threatened lawsuits cannot be predicted with
certainty, and an unfavorable outcome could have a negative impact on
the Company, at this time, in the opinion of management, the ultimate
resolution of these matters will not have a material effect on the
Company's financial position, results of operation or liquidity.
Management does not expect that losses, if any, from the contingencies
described above will be of material importance to the financial
condition or future earnings of the Company.
- - 8 -
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION JANUARY 31, 2001 COMPARED TO OCTOBER 31, 2000
Under first quarter market conditions, the Company borrowed on its line
of credit to maintain its inventory levels to provide for anticipated
first quarter sales and to pay down certain current liabilities. The
Company's working capital decreased $744,000 primarily due to the
increase in the line of credit and accounts payable for expenses
incurred during the quarter ended January 31, 2001. The current ratio
decreased to 1.8:1 at January 31, 2001 compared to 2.9:1 at October 31,
2000. 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 $368,000 unused
line of credit, is considered to be adequate to provide for near term
cash needs.
RESULTS OF OPERATIONS QUARTER ENDED JANUARY 31, 2001 COMPARED TO
QUARTER ENDED JANUARY 31, 2000
The nature of the Company's business is seasonal. Historically, sales in
the second and third quarters have been higher than sales achieved in
the other fiscal quarters of the year. Thus, expenses and, to a greater
extent, operating income vary by quarter. Caution, therefore, is advised
when appraising results for a period shorter than a full year, or when
comparing any period other than to the same period of the previous year.
Total sales for the quarter ended January 31, 2001 were $6,753,000, a
38% decrease from sales of $10,966,000 for the same quarter of the prior
year. The decrease consisted of a 50% decrease in manufactured home
sales and a 24% decrease in recreational vehicle (RV) sales. Sales
decreases in the RV division have been significantly impacted from
rising interest rates and higher fuel costs. Sales of manufactured homes
have been impacted unfavorably by lender's tightened credit standards as
well as industry-wide excess finished goods inventory levels.
Cost of sales for the quarter ended January 31, 2001 was $7,059,000, a
27% decrease from cost of sales of $9,618,000 for the same quarter of
the prior year. This decrease is due principally to the reduction of
sales attributed to the manufactured homes division and to a lesser
degree, the recreational vehicle division. Cost of sales as a percent
of sales increased 17% when compared to the same quarter of the prior
year, which resulted in the Company reporting a negative gross profit
margin for the quarter ended January 31, 2001. Although product margins
for both divisions are marginally lower to those of the same period in
2001, the disproportional reduction in gross profit compared to sales is
due principally to the under absorption of fixed overhead costs brought
about by lower production and sales volumes.
9
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selling, general and administrative expenses for the quarter ended
January 31, 2001 increased to 16% of sales in comparison to 9% of sales
for the same quarter of the prior year. The selling, general and
administrative dollars increased 9%, or $88,000, from $1,010,000 for the
quarter ended January 31, 2000 to $1,098,000 for the quarter ended
January 31, 2001 primarily due increased legal expenses for the current
quarter.
Interest income for the current quarter was $71,000 compared to $55,000
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 in
second and third quarters of fiscal 2000), compared to the same quarter
of the prior year. Interest expense for the current quarter was $69,000
compared to $17,000 in the same quarter of the prior year. This change
was primarily the result of an increase in average short-term
borrowings.
The net loss for the three months ended January 31, 2001 was $866,000,
or $0.84 per share, compared to net income of $177,000, or $0.16 per
share, for the same quarter of the prior year.
10
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
January 31, 2001.
11
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 3/12/01 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
DATE 3/12/01 /s/ Bruce K. Skinner
Bruce K. Skinner
Vice President and Treasurer
(Principal Financial and Accounting Officer)
12