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 1,027,334 1,098,124
outstanding-
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, 10/31/00 1,027,334 $694 $775 $10,403 $11,872
Net loss (866) (866)
_______ ____ _____ _______ ______
Balance, 01/31/01 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 694 694
1,027,334 (January 31, 2001) and 1,110,934
(October 31, 2000) shares.
Additional paid-in capital 775 775
Retained earnings 9,537 10,403
Total shareholders' equity 11,006 11,872
Total liabilities and shareholders' $ 21,122 $ 17,346
equity
<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 (843) (1,988)
borrowings
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>
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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, 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
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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 (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