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, 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 April 30, 2001.
1 of 16 Pages
PART I
FINANCIAL INFORMATION
2
KIT MANUFACTURING COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months
Ended
April 30, April
30,
2001 2000 2001
2000
Sales $12,154 $14,908 $18,907 $25,874
Costs and expenses:
Cost of sales 11,583 13,684 18,642 23,302
Selling, general and
administrative expenses 1,680 1,166 2,829 2,176
Equity in loss of retail
sales partnership - 26 - 129
Operating (loss) income (1,109) 32 (2,564) 267
Other income (expense)
Interest income 109 47 179 102
Interest expense (79) (58) (148) (75)
Gain on sale of property, plant
and equipment - 1,455 - 1,455
(Loss) income before income taxes (1,079) 1,476 (2,533) 1,749
(Benefit) provision for income
taxes
(Note A) (436) 611 (1,024) 707
Net (loss) income (643) $ 865 $(1,509) $ 1,042
Net (loss) income per share-
basic and diluted $(0.63) $0.80 ($1.47) $ 0.96
(Note B)
Weighted-average shares 1,027,33 1,082,80 1,027,334 1,090,491
outstanding- 4 6
basic and diluted
(Note B)
Dividends per share $ - $ - $ - $ -
<FN>
<F1>The accompanying notes are an integral part of these financial
statements. </FN>
KIT MANUFACTURING COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
April 30,
Oct. 31,
2001
2000
ASSETS
Cash and cash investments $ 5,710 $ 4,489
Accounts receivable, net 3,177 2,787
Inventories:
Raw materials 2,491 1,664
Work in process 686 597
Finished goods 2,549 537
Total inventories 5,726 2,798
Prepaids and other assets 328 324
Deferred income taxes 1,025 1,025
Total current assets 15,966 11,423
Property, plant and equipment, net 5,717 5,637
Other assets 1,774 286
Total assets $ 23,457 $ 17,346
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit $ 3,238 -
Accounts payable 2,610 $ 818
Retail flooring liability 2,129 -
Accrued payroll and related items 954 903
Accrued marketing programs 613 471
Accrued expenses 2,063 1,699
Total current liabilities 11,607 3,891
Deferred income taxes 1,487 1,487
Losses in excess of investments in and
advances to retail sales partnership - 96
Total liabilities 13,094 5,474
Commitments and contingencies
Shareholders'equity
Common stock issued and outstanding 694 694
1,027,334 (April 30, 2001) and 1,027,334
(October 31, 2000) shares.
Additional paid-in capital 775 775
Retained earnings 8,894 10,403
Total shareholders' equity 10,363 11,872
Total liabilities and shareholders' $ 23,457 $ 17,346
equity
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
KIT MANUFACTURING COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the six months ended
April 30,
2001
2000
Cash flow from operating activities:
Cash received from customers $ 17,933 $ 24,948
Interest received 179 102
Cash paid to suppliers and employees (28,135)
(19,758)
Interest paid (74)
(148)
Income taxes paid (128)
(3)
Net cash used in operating activities (3,287)
(1,797)
Cash flow from investing activities:
Purchase of property, plant and equipment (298)
(3)
Proceeds from disposals of property, plant
and equipment 8 1,667
Cash from consolidation of retail sales
partnership 94 -
Net cash provide by investing activities 99 1,369
Cash flow from financing activities:
Proceeds from lines-of-credit borrowings 9,340 9,123
Principal payments on lines-of-credit (6,390)
borrowings (6,421)
Purchase of treasury stock - (176)
Net cash provided by financing activities 2,919 2,557
Net increase in cash 1,221 639
Cash at beginning of period 4,489 4,731
Cash at end of period $ 5,710 $ 5,370
Reconciliation of net (loss) income to net cash
used in operating activities:
Net (loss) income $ $ 1,042
(1,509)
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 304 186
Gain on sale of property, plant and equipment (1,455)
Equity in loss of retail sales partnership 129
Changes in operating assets and liabilities:
Accounts receivable 530
(496)
Inventories (1,742)
(664)
Prepaids and other assets (857)
(456)
Accounts payable and accruals 2,051 (1,699)
Accrued income taxes 579
(1,027)
Net cash used in operating activities $ $(3,287)
(1,797)
<FN>
<F1>The accompanying notes are an integral part of these financial
statements.
</FN>
6
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 the 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 At October 31, 2000 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, was reflected as a
noncurrent liability totaling $96,000. Additionally, the retail
sales partnership has reflected all advances from the Company as a
component of current liabilities equal to $625,000 at October 31,
2000.
In fiscal 2001, the Company assumed significantly all
responsibility in connection with the daily operations of the
retail sales partnership. Although the original partnership
agreement governing the relationship between the Company and the
minority interest holder provided participating rights to the
minority holder and thus precluded the Company from consolidating
the retail sales partnership, the partnership's recurring losses
8
KIT MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
and need for continued funding demanded the Company's attention.
The retail sales partnership commenced operations in fiscal 1998
and has continued to perform substantially below expectations with
losses trending significantly higher in each successive year.
While lender's tightened credit policies and industry-wide excess
inventory levels are partially responsible for the partnership's
poor performance, the Company's management believes such factors
are secondary compared to the minority interest holder's
management of the partnership's operations in accordance with the
original agreement. The partnership agreement specifically
delegates day-to-day operating responsibility and decision making
authority to the minority interest holder and it is management's
contention that such responsibilities have not been adequately
fulfilled, as evidenced by the poor operating results previously
mentioned. As a result, in fiscal 2001, the Company continued to
fund 100% of the partnership's working capital needs and also
became substantially involved in the decision making process and
daily operations of the partnership. Due to such recent events,
the Company is in the process of negotiating the purchase of the
minority interest holder's 30% interest in the partnership and has
elected to consolidate its investment effective the beginning of
fiscal 2001. In prior years, the Company accounted for this
investment under the equity method of accounting. However,
because the cumulative losses of the partnership exceeded the
minority interest holder's investment in fiscal 1999, the Company
began recording 100% of the equity in losses from this point
forward.
The condensed unaudited financial information of the partnership
is as follows:
Three months ended Six months ended
April 30, April 30,
(Dollars in Thousands) 2001 2000 2001 2000
Condensed Statement
of Income Information:
Sales $755 $1,815 $1,911
$2,890
Cost of sales (606) (1,595) (1,493)
(2,539)
Selling, general and
administrative expenses (221) (205) (474)
(433)
Interest expense (67) (52) (135)
(102)
Net loss (139) (37) $(191)
$(184)
April 30, October
31,
2001
2000
Condensed Balance Sheet Information:
Current assets $2,504
$2,602
Noncurrent assets 360
389
$2,864
$2,991
Current liabilities $3,776
$3,681
Noncurrent liabilities -
31
Members' deficit (912)
(721)
$2,864
$2,991
9
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, interest expense or
any gains or losses on the sale of property, plant and equipment
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
receivables for any period presented.
Three Months Ended Six Months
Ended
(Dollars in Thousands) April 30, April
30,
2001 2000 2001
2000
Sales
Manufactured homes $ 6,141 $6,224 $ 9,167
$12,295
Recreational vehicles 6,013 8,684 9,740
13,579
Total sales $ 12,154 $14,908 $ 18,907
$25,874
Income/(loss) before income taxes
Operating (loss) income
Manufactured homes $ (295) $ 129 $ (939)
$ 461
Recreational vehicles (814) (97) (1,625)
(194)
Total operating (loss) income (1,109) 32 (2,564)
267
Interest income 109 47 179
102
Interest expense (79) (58) (148)
(75)
Gain on sale of property, plant
and equipment - 1,455 -
1,455
(Loss) income before income taxes $(1,079) 1,476 $(2,533)
$1,749
===== ===== =====
=====
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.
10
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
In fiscal 2001, the Company assumed significantly all
responsibility in connection with the daily operations of the
retail sales partnership. Although the original partnership
agreement governing the relationship between the Company and the
minority interest holder provided participating rights to the
minority holder and thus precluded the Company from consolidating
the retail sales partnership, the partnership's recurring losses
and need for continued funding demanded the Company's attention.
The retail sales partnership commenced operations in fiscal 1998
and has continued to perform substantially below expectations with
losses trending significantly higher in each successive year.
While lender's tightened credit policies and industry-wide excess
inventory levels are partially responsible for the partnership's
poor performance, the Company's management believes such factors
are secondary compared to the minority interest holder's
management of the partnership's operations in accordance with the
original agreement. The partnership agreement specifically
delegates day-to-day operating responsibility and decision making
authority to the minority interest holder and it is management's
contention that such responsibilities have not been adequately
fulfilled, as evidenced by the poor operating results previously
mentioned. As a result, in fiscal 2001, the Company continued to
fund 100% of the partnership's working capital needs and also
became substantially involved in the decision making process and
daily operations of the partnership. Due to such recent events,
the Company is in the process of negotiating the purchase of the
minority interest holder's 30% interest in the partnership and has
elected to consolidate its investment effective the beginning of
fiscal 2001. In prior years, the Company accounted for this
investment under the equity method of accounting. However,
because the cumulative losses of the partnership exceeded the
minority interest holder's investment in fiscal 1999, the Company
began recording 100% of the equity in losses from this point
forward.
The condensed statement of operations for the retail sales
partnership for the three months and six months ended April 30,
2000, and 2001 is shown in note G. The condensed balance sheet for
the retail sales partnership as of April 30, 2001 and October 31,
2000 is also shown in note G.
FINANCIAL CONDITION APRIL 30, 2001 COMPARED TO OCTOBER 31, 2000
Since October 31, 2000, the Company has borrowed on its line of
credit to maintain its inventory levels to provide for anticipated
sales and to pay down certain current liabilities. Although the
Company's cash and cash investments ($1,221,000), accounts
receivable ($390,000) and inventory ($2,928,000) have increased
since October 31, 2000, working capital has decreased $3,132,000.
This decrease in working capital is primarily due to the increase
in the line of credit ($3,238,000), increase in accounts payable
($1,792,000), and the inclusion of the retail flooring liability
($2,129,000) as a result of the consolidation of the retail sales
partnership, partially offset by the higher asset balances
mentioned above. It should also be noted that such increases in
the previously mentioned accounts, most notably inventory, and
accounts payable, are also partially a result of the consolidation
of the retail sales partnership in fiscal 2001. The current ratio
decreased to 1.4:1 at April 30, 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
11
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
described above, capital resources, working capital, and
$1,109,000 unused line of credit, are considered to be adequate to
provide for near term cash needs.
RESULTS OF OPERATIONS QUARTER ENDED APRIL 30, 2001 COMPARED TO
QUARTER ENDED APRIL 30, 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 April 30, 2001 were $12,154,000,
an 18% decrease from sales of $14,907,000 for the same quarter of
the prior year. The decrease consisted of a 1% decrease in
manufactured home sales and a 31% decrease in recreational vehicle
(RV) sales. Sales decreases in the RV division have been
significantly impacted by higher fuel costs, lower consumer
confidence, and tightened credit policies. Sales of manufactured
homes have been impacted unfavorably by lender's tightened credit
standards as well as industry-wide excess finished goods inventory
levels. These decreases were partially offset by $755,000 in sales
during the three months ended April 30, 2001 as a result of the
consolidation of the retail sales partnership during this period.
Cost of sales for the quarter ended April 30, 2001 was
$11,583,000, a
15% decrease from cost of sales of $13,684,000 for the same
quarter of
the prior year. This decrease is due principally to the reduction
of
sales attributed to the recreational vehicle division and to a
lesser
degree, the manufactured homes division. These decreases were
partially offset by $606,000 in cost of sales recorded during the
three months ended April 30, 2001 in connection with the
consolidation of the retail sales partnership during this period.
Cost of sales as a percent
of sales increased 3% from 92% in the second quarter of fiscal
2000 to 95% in the second quarter of fiscal 2001. Although product
margins for both divisions are marginally lower to those of the
same period in 2000, 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.
Selling, general and administrative expenses for the quarter ended
April 30, 2001 increased to 14% of sales in comparison to 8% of
sales for the same quarter of the prior year. The selling, general
and administrative
12
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
dollars increased 44%, or $514,000, from $1,166,000 for the
quarter ended April 30, 2000 to $1,680,000 for the quarter ended
April 30, 2001.
This increase is due to increased selling and marketing costs as
the Company attempts to maintain its market share as well as the
inclusion of $221,000 of expenses from the consolidation of the
retail sales partnership during the three months ended April 30,
2001
Equity in loss of retail sales partnership decreased from $26,000
for the quarter ended April 30, 2000 to $0 for the quarter ended
April 30, 2001. This decrease is due to the consolidation of the
retail sales partnership in fiscal 2001, which had previously been
accounted for under the equity method of accounting in the prior
period.
Interest income increased $62,000, or 132%, from $47,000 for the
quarter ended April 30, 2000 to $109,000 for the quarter ended
April 30, 2001.
The increase was due primarily to an increase in average balances
of invested funds compared to the same quarter of the prior year.
Interest expense increased $21,000, or 36%, from $58,000 for the
quarter ended April 30, 2000 to $79,000 for the quarter ended
April 30, 2001.
This increase was primarily the result of an increase in average
short-term borrowings due principally to the inclusion of such
borrowings from the consolidation of the retail sales partnership
in 2001.
During February 2000, the Company sold land and buildings located
in Chino, California for consideration of $1,652,000 resulting in
a gain of $1,455,000.
The net loss for the three months ended April 30, 2001 was
$643,000, or $0.63 per share, compared to net income of $865,000,
or $0.80 per share, for the same quarter of the prior year.
RESULTS OF OPERATIONS SIX MONTHS ENDED APRIL 30, 2001 COMPARED TO
SIX MONTHS ENDED APRIL 30, 2000
Total sales for the six months ended April 30, 2001 were
$18,907,000, a
27% decrease from sales of $25,874,000 for the same period of the
prior
year. The decrease consisted of a 25% decrease in manufactured
homes
sales and a 28% decrease in recreational vehicle (RV)
sales. Sales decreases in the RV division have been significantly
impacted by
13
KIT MANUFACTURING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
higher fuel costs, lower consumer confidence, and tightened credit
policies. Sales of manufactured homes have been impacted
unfavorably by lender's tightened credit standards as well as
industry-wide excess finished goods inventory levels. These
decreases were partially offset by $1,911,000 in sales during the
six months ended April 30, 2001 as a result of the consolidation
of the retail sales partnership during this period.
Cost of sales for the six months ended April 30, 2001 was
$18,642,000, a
20% decrease from cost of sales of $23,302,000 for the same six
months of the prior year. This decrease is due primarily due to
the decrease in sales, company-wide, in both the recreational
vehicle division and the manufactured homes division. These
decreases were partially offset by $1,493,000 in cost of sales
recorded during the six months ended April 30, 2001 in connection
with the consolidation of the retail sales partnership during this
period. Cost of sales as a percent of sales increased 9% from 90%
for the 6 months ended April 30, 2000 to 99% for the 6 months
ended April 30, 2001. Although product margins for both divisions
are marginally lower to those of the same period in 2000, 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.
Selling, general and administrative expenses for the six months
ended April 30, 2001 increased to 15% of sales in comparison to 8%
of sales for the same six months of the prior year. The selling,
general and administrative dollars increased 30%, or $653,000,
from $2,176,000 for the six months ended April 30, 2000 to
$2,829,000 for the six months ended April 30, 2001. This increase
is due to increased selling and marketing costs as the Company
attempts to maintain its market share as well as the inclusion of
$474,000 of expenses from the consolidation of the retail sales
partnership during the six months ended April 30, 2001.
Equity in loss of retail sales partnership decreased from $129,000
for the six months ended April 30, 2000 to $0 for the six months
ended April 30, 2001. This decrease is due to the consolidation
of the retail sales partnership in fiscal 2001, which had
previously been accounted for under the equity method of
accounting in the prior period.
Interest income increased $77,000, or 75%, from $102,000 for the
six months ended April 30, 2000 to $179,000 for the six months
ended April 30, 2001. The increase was due primarily to an
increase in average balances of invested funds compared to the
same six months of the prior year. Interest expense increased
$73,000, or 97%, from $75,000 for the
six months ended April 30, 2000 to $148,000 for the six months
ended April 30, 2001. This increase was primarily the result of an
increase in average short-term borrowings due principally to the
inclusion of such borrowings from the consolidation of the retail
sales partnership in 2001.
During February 2000, the Company sold land and buildings located
in Chino, California for consideration of $1,652,000 resulting in
a gain of $1,455,000.
The net loss for the six months ended April 30, 2001 was
$1,509,000, or $1.47 per share, compared to net income of
$1,042,000, or $0.96 per share, for the same six months of the
prior year.
14
PART II
OTHER INFORMATION
Item 6 (b).
Form 8-K was not required to be filed during the quarter ended
April 30, 2001.
15
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 6/14/01 /s/ Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
DATE 6/14/01 /s/ Bruce K. Skinner
Bruce K. Skinner
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
16