United States
Securities and Exchange Commission
Washington, D. C. 20547
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 2001. or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________ to
_______________.
Commission File number: 0-22048
STARCRAFT CORPORATION
(Exact name of Registrant as specified in its charter)
Indiana 34-1817634
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Post Office Box 1903, 2703 College Avenue, Goshen, Indiana 46527-1903
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (219) 533-1105
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
Common Share Purchase Rights
(Title of Class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
-----
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of December 18, 2001, was $15,997,721.
The number of shares of the Registrant's Common stock, without par value,
outstanding as of December 21, 2001, was 4,266,059 shares.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE
The Registrant's definitive proxy statement to be filed with respect to the
Annual Meeting of Shareholders to be held February 6, 2002, is incorporated
herein by reference in response to portions of Part III of this report.
STARCRAFT CORPORATION
Form 10-K
Index
PART 1
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K.
Signatures
PART I
ITEM 1. BUSINESS
OVERVIEW
Starcraft Corporation (the "Company"), an Indiana corporation founded in 1990,
is a manufacturer of second-stage, custom vehicles. The business is comprised of
two segments; conversion vehicle parts and direct Original Equipment
Manufacturer ("OEM") automotive supply. Conversion vehicle parts are used in
conversion vans, pickup trucks and sport utility vehicles. Second stage
represents the manufacturing completion of incomplete (first stage) vehicles
from the OEMs.
BACKGROUND
Starcraft traces its history to 1903 when Star Tank Company was founded in
Goshen, Indiana as a maker of metal farm equipment. Over the course of the
century the Company's predecessor became a leading manufacturer of aluminum
boats and recreational vehicles and, in the late 1970's, led the automotive
conversion industry by producing luxury van conversions for middle and upper
income consumers. In 1987, the predecessor's management completed a leveraged
buyout and, in 1988, sold the boat manufacturing business. On January 18, 1991,
the Company purchased the assets of the automotive and recreational vehicle
divisions, and simultaneously sold the recreational vehicle division to a third
party.
In July 1994, the Company acquired substantially all of the assets of Imperial
Industries, Inc., another conversion vehicle manufacturer. In February 1997, the
Company purchased the assets of National Mobility Corporation in Elkhart,
Indiana, a manufacturer of vehicles for the mobility impaired. In October 1997,
the Company started an OEM automotive supply business with a partner. The
primary purpose of this business is to supply conversion vehicles directly to
the Big 3 automakers. In February 1998, the Company started manufacturing and
marketing commercial shuttle buses. In May 2001, the Company sold its
unprofitable van conversion business. In August 2001, the Company sold its bus
and mobility business. The results of these two businesses are recorded in the
Company's financial statements as discontinued operations.
The Company became a public company in July 1993 and its shares are currently
trading on the Over the Counter Bulletin Board ("OTCBB").
SEGMENTS
The following table sets forth for the three years ended September 30, 2001, the
net sales and operating income for the Company's operating segments, in
thousands,
Net Sales
--------------------------------------------------
2001 2000 1999
---- ---- ----
OEM automotive supply $ 43,694 $ 73,162 $ 32,700
Conversion vehicle parts 5,240 2,153 3,683
--------- -------- --------
Total $ 48,934 $ 75,315 $ 36,383
========= ======== ========
Operating Segment Income
--------------------------------------------------
2001 2000 1999
---- ---- ----
OEM automotive supply $ 347 $ 5,467 $ 3,240
Conversion vehicle parts 981 44 71
--------- -------- --------
Total $ 1,328 $ 5,511 $ 3,311
========= ======== =========
The following provides a reconciliation of segment information to consolidated
information.
2001 2000 1999
---- ---- ----
Operating segment income $ 1,328 $ 5,511 $ 3,311
Nonoperating expense (254) (782) (604)
Income tax (expense) credit (26) (379) 21
Unallocated corporate expenses (546) (169) (1,925)
--------- --------- ---------
Income from
Continuing operations $ 502 $ 4,181 $ 803
======== ========= =========
OEM Automotive Supply
In 1998, the Company started a new operation (the "LLC") with a partner to
supply conversion vehicle type products directly to OEM automotive customers as
a Tier 1 automotive supplier. The Company currently owns 50% of this enterprise.
All of the LLC's OEM automotive supply sales in 2001, 2000 and 1999 were to
General Motors Corporation ("GM").
The LLC's strategy is to provide OEM's with faster time to market, less costly,
high quality exterior appearance packages. The LLC operates three manufacturing
facilities in close proximity to the OEM vehicle assembly plants. Each facility
is QS 9001 registered.
The LLC receives vehicle chassis from the OEM and adds certain appearance items
such as ground effects, wheels and badging. Chassis are provided by the OEM on a
drop-ship basis and are not included in the sales of the Company. The vehicles
are placed back into the normal OEM distribution stream. The vehicles carry the
full OEM warranty and are marketed directly by the OEM. The LLC engineers and
validates the products to OEM standards. Programs range from two to five years
and are backed by contractual agreements with the OEMs. The LLC provides a
limited warranty of its products to the OEM. The LLC warranty is substantially
the same as the OEM warranty provided to the OEM's retail customers.
The major domestic market for the LLC's products are highly competitive.
Competition is based primarily on price, product engineering and performance,
technology, quality and overall customer service, with the relative importance
of such factors varying among products. The LLC's global competitors include a
large number of other well-established independent manufacturers.
The Company's OEM automotive supply sales are directly impacted by the size of
the automotive industry and GM's market share. Further, GM periodically reduces
production or closes plants for several months for model changeovers. During the
fourth quarter of fiscal year 2000, one of the Company's two manufacturing
facilities was substantially shut down as a result of GM's model changeover.
This adversely affected the Company's fourth quarter results. The shut down
continued through the second quarter of fiscal 2001. The facility was back in
production in the third quarter of fiscal 2001. Accordingly, a decline in sales
in the automotive market or in GM's automotive sales, or production cutbacks and
plant shut downs for model changeovers by GM, could have an adverse impact on
the Company's sales and profits. Sales of the automotive supply segment are
subject to long-term contracts with GM. Continued sales and growth of this
segment is subject to the Company's ability to continue to satisfactorily
perform and to obtain such contracts over time.
At September 30, 2001, the LLC's backlog of firm orders was $6.2 million
compared with a backlog of $1.9 million at October 1, 2000. The increase in
backlog is primarily due to all three plants operating at September 30, 2001
where only one plant was operating at October 1, 2000 due to the model
changeover at the LLC's Texas plant. The LLC utilizes an independent
manufacturer representative to market and sell its services.
Conversion Vehicle Parts
The Company purchases for resale and manufactures conversion vehicle parts for a
variety of GMC, Chevrolet, Ford and Dodge conversion vans, pick-up trucks and
SUVs. The Company sells seats, carpeting, electronics, running boards and other
items that enhance passenger comfort and safety. Conversion vehicle parts are
sold and distributed directly to vehicle owners and through approximately 250
OEM automobile dealers that were former conversion vehicle customers. The
Company sells these products primarily in North America but also exports to
Northern Europe and Asia.
The domestic conversion vehicle industry has declined steadily over the last
several years. Many conversion vehicle manufacturers have ceased operation in
light of this decline. However, over one million conversion vehicles have been
manufactured over the last seven years and many are still in use. During the
life of the conversion vehicle, many conversion components, including seating,
electronics, carpet and wood trim must be replaced. Based on this information,
the Company believes an opportunity exists to grow its conversion vehicle parts
business. However, high gasoline prices, the slowing economy, and the increasing
popularity of Sport Utility Vehicles may accelerate the decline in the number of
conversion vehicles in use.
The Company also purchases conversion kits in the United States and ships the
kits to a vendor in Mexico. The kits are installed on van chassis and then sold
to approximately 20 automobile dealers throughout Mexico.
The Company started its conversion kit assembly in Mexico in the fourth quarter
of 2000 as part of a strategy to expand its conversion vehicle business into
Central and South America. The Company does not believe it has any competition
in this market. Sales may be negatively impacted by the Mexican economy and the
availability of OEM chassis.
At September 30, 2001, the Company had a backlog of $180 compared with a backlog
of $220 at October 1, 2000. The backlog declined from prior year levels due to a
decline of certain international orders. The Company considers such orders to be
reasonably firm. All of the Company's products are subject to certain seasonal
sales influences and sales tend to be stronger during March through July.
In conjunction with the sale of the conversion vehicle business and bus and
mobility business, the Company may be obligated to repurchase certain accounts
receivable and inventory. Further, the Company has indemnified the purchaser of
the bus and mobility business if warranty expenses exceed amounts assumed by the
purchaser. The Company believes it had recorded adequate reserves at September
30, 2001. However, there is no assurance that these reserves will be sufficient
to offset actual obligations assumed under these agreements.
The Company competes in its components business with conversion vehicle
manufacturers. There is no assurance that the Company will be able to retain its
current customers or add new customers as a result of the sale its conversion
vehicle business as many customers may prefer to purchase parts from its
conversion vehicle supplier.
PATENTS AND TRADEMARKS
Trademarks. The Company's Predecessor manufactured boats, motor homes and other
recreational vehicles under the name "Starcraft." The boat manufacturing
business was sold by the Predecessor to Brunswick Corporation in 1988 which
subsequently sold the business. The Company initially acquired the recreational
vehicle business in the Predecessor's 1991 reorganization proceeding, but
immediately sold it to an RV company. The Predecessor's Canadian conversion
business was acquired by a Canadian firm. A corporation in the boating industry
has independently registered and owns the "Starcraft" and related trademarks for
use with boats and marine products and thus the Company has no control over the
quality of boats produced and sold under the "Starcraft" mark. The Company
retains ownership of "Starcraft" and related registered marks for use with
automotive, recreational vehicle products, conversion vans, shuttle buses and
mobility vans. It licenses the owners of the Predecessor's RV business and
Canadian van conversion business, as well as the purchasers of its van
conversion vehicle and bus and mobility businesses, to use these trademarks.
While it has some control over the quality of its licensees' products, it does
not control all aspects of their businesses. The Canadian entity is required to
pay a royalty to the Company and to purchase its components from the Company (or
from others with the Company's approval). The Company is not permitted to export
to Canada and its Canadian licensee does not export to the United States. The
agreement for the sale of the Company's conversion vehicle business requires the
purchaser to pay royalties of $100 for each conversion vehicle unit sold for the
five years beginning April 2002.
MANUFACTURING
OEM automotive supplier segment manufacturing facilities have been established
in Louisiana, Texas and New Jersey and are located near GM assembly plants. The
LLC also has an engineering operation in Detroit. Most conversion vehicle parts
are purchased for resale. Certain wood parts are manufactured in the Goshen,
Indiana plant.
All components for the OEM automotive supply segment are purchased from outside
suppliers. The primary raw material used in the components is plastic that the
Company believes is readily available from several sources. The primary
components for conversion vehicle parts are also purchased from outside
suppliers. The principal raw materials used in the manufacturing process are
fabric and plywood. The Company's products are generally produced to firm orders
and are designed and engineered by the company.
Supplies for the components and materials that the Company utilizes are
generally available from several sources. From time to time the Company
experiences delays in delivery of certain components or materials from
suppliers.
SAFETY AND REGULATION
The manufacture, distribution and sale of the Company's products are subject to
governmental regulations in the United States at the federal, state and local
levels. The most extensive regulations are promulgated under the National
Traffic and Motor Vehicle Safety Act which, among other things, empowers the
National Traffic and Motor Vehicle Safety Administration ("NHTSA") to require a
manufacturer to remedy vehicles containing "defects related to motor vehicle
safety" or vehicles which fail to conform to all applicable federal motor
vehicle safety standards.
Federal Motor Vehicle Safety Standards are promulgated by the NHTSA. Many of the
Company's components are affected by these standards. The Company engages
various testing companies, which also perform testing for NHTSA, to test the
Company's components. The Company's components subject to these standards were
determined to meet or exceed them. Promulgation of additional safety standards
in the future could require the Company to incur additional testing and
engineering expenses which could adversely affect the Company's results of
operations. NHTSA can require automotive manufacturers to recall products. The
Company has not experienced any material recalls.
The Company's international sales are subject to foreign tariffs and taxes,
changes in which are difficult to predict and which can adversely affect
Starcraft sales. Starcraft's products must also comply with government safety
standards imposed in its foreign markets.
Both federal and state authorities have various environmental control standards
relating to air, water and noise pollution that affect the business and
operations of the Company. The Company believes that it has complied in all
material respects with applicable environmental regulations and standards and
does not currently expect that any failure of compliance will have any material
adverse effect on the Company.
Like other automotive manufacturers, the Company may be subject to claims that
its products caused or contributed to damage or injury sustained in vehicle
accidents or may be required to recall products deemed unsafe. Any such claims
in excess of the Company's insurance coverage or material product recall
expenses could adversely affect the Company's financial condition and results of
operations.
EMPLOYEES
As of September 30, 2001, the Company employed 206 people. Of these, 133 were
production line associates and 73 were salaried sales, engineering and
administrative staff. During peak production periods, the Company may increase
its work force. Historically, the available labor force has been adequate to
meet such periodic requirements. The Company considers its relationships with
its personnel to be satisfactory.
ITEM 2. PROPERTIES
The following table summarizes the Company's properties as of September 30,
2001:
Size of Owned or
Location Facility Leased Type of Operation
Goshen, Indiana 5,000 s.f. Leased Executive and Administrative
Offices
Goshen, Indiana 10,000 s.f. Owned Parts warehouse, Offices and
Manufacturing (6 acres),
Conversion Vehicle Parts
Segment
Shreveport, Louisiana 38,000 s.f. Leased Manufacturing and
Assembly, OEM
Automotive Supply
Segment
Grand Prairie, Texas 100,000 s.f. Leased Manufacturing and
Assembly, OEM
Automotive Supply
Segment
Bridgewater, NJ 38,000 s.f Leased Manufacturing and
Assembly, OEM
Automotive Supply
Segment
Madison Heights, MI 40,000 s.f. Leased Offices, Engineering and
Production Development,
OEM Automotive Supply
Segment
The Emma and main Goshen production facilities were sold with the bus and
mobility business. The chassis storage facility now contains the conversion
vehicle parts business and is pledged as security under the loan agreement.
The Shreveport and Grand Prairie leases have terms that parallel the length of
the vehicle contracts at the respective plants. The New Jersey facility is
leased on a month-to-month basis pending resolution of a local zoning issue, at
which time a seven-year term commences. The Michigan lease has a six-year term.
ITEM 3. LEGAL PROCEEDINGS
The Company does not anticipate that any pending legal proceeding to which it is
party will have any material adverse effect on its financial conditions or
results of operations. The Company maintains product liability insurance which
it currently considers adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock is quoted on the Over the Counter Bulletin Board ("OTCBB"). As of
December 17, 2001, there were 66 shareholders of record of Starcraft's Common
Stock.
On May 25, 2001, the Company was delisted from the NASDAQ Small Cap Market as it
no longer meets the minimum tangible asset or profitability levels for continued
inclusion in the Small Cap Market. Should the Company qualify for listing on the
NASDAQ in the future, it will consider the merits of registering its shares at
that time.
The following table sets forth the high and low closing prices per share of
Common Stock for the quarters ended as quoted on the OTCBB.
Quarter Ended High Low
January 2, 2000 $ 8.000 $4.438
April 2, 2000 9.125 6.125
July 2, 2000 8.500 7.000
October 1, 2000 8.250 3.500
December 31, 2000 3.750 1.750
April 1, 2001 2.500 1.125
July 1, 2001 2.000 1.030
September 30, 2001 3.000 1.120
Dividend Policy. The Company has paid no cash dividends since its initial public
offering. The Company currently intends to retain earnings for use in the
operation and expansion of its business and therefore does not anticipate paying
cash dividends on Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent, among other things, upon earnings, capital requirements, any
financing agreement covenants and the financial condition of the Company.
Anti-Takeover Provisions. Indiana law and the Company's Articles of
Incorporation and Code of By-laws contain provisions that restrict the
acquisition of control of the Company. Such provisions can affect the rights of
shareholders acquiring substantial interests in the Company's shares. For
example, a shareholder who acquires more than 10% of the Company's shares
without prior board approval will be limited in the timing and terms of any
transaction it may enter into with the Company and will be subject to related
provisions.
SHAREHOLDER RIGHTS PLAN
In August 1997 the Company adopted a shareholders Rights Plan issuing one right
for each outstanding share. Each right entitles the registered holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment. The rights become exercisable if a person or group (other than
certain related persons) acquires or announces a tender offer for prescribed
percentages of the Company's shares or is declared an "adverse person" by the
Company's Board of Directors. In these events, each right holder may purchase
shares with a value equal to twice the exercise price. Furthermore, if the
Company engages in certain mergers or similar business combinations a right
holder may purchase shares of the acquiring company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousand,
except per share data) Year Ended
- ---------------------------------------------------------------------------------------------
Income Statement Data Sept. 30, Oct. 1, Oct. 3, Sept. 27, Sept. 28,
2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------
Net Sales:
Domestic $48,647 $ 75,176 $ 36,102 $ 3,166 $ 4,086
Export 287 139 281 277 202
Total Net Sales 48,934 75,315 36,383 3,443 4,288
Cost of Goods Sold 38,184 56,719 28,105 3,216 3,687
Gross Profit 10,750 18,596 8,278 227 601
Operating Expenses 9,898 8,336 4,444 1,030 1,276
Restructuring and Goodwill
Impairment Charges --- --- --- --- ---
Operating Income (loss) 852 10,260 3,834 (803) (675)
Interest Expense (547) (864) (719) (498) (160)
Other Income, Net 293 82 115 100 192
Income (loss) Before Minority 598 9,478 3,230 (1,201) (643)
Interest and Taxes
Minority Interest (70) (4,918) (2,448) --- ---
Income Tax (expense) Credit (26) (379) 21 44 63
Income (Loss) from 502 4,181 803 (1,157) (580)
Continuing Operations
Loss from Discontinued Operations (3,679) (8,528) (281) (5,602) (10,722)
Net Income (loss) $ (3,177) $ (4,347) $ 522 $ (6,759) $(11,302)
Weighted Average Common Shares 4,245 4,214 4,159 4,134 4,127
Outstanding
Earnings (loss) Per Share $ (0.75) $ (1.03) $ 0.13 $ (1.63) $ (2.74)
Earnings (loss) Per Share (0.75) (1.03) 0.12 (1.63) (2.74)
Assuming Dilution
Balance Sheet Data
- ---------------------------------------------------------------------------------------------
Working Capital $ 2,040 $ 2,165 $ 10,192 $ 5,402 $ 7,011
Total Assets 22,010 34,994 43,781 29,015 27,779
Long-term Debt 8,092 9,957 13,506 10,777 5,696
Shareholders' Equity (Deficit) $ (2,703) 77 4,186 3,536 10,295
Book Value per Share $ (0.64) 0.02 1.00 0.86 2.49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The consolidated statements of income summarize operating results for the last
three years. This section of Management's Discussion highlights the main factors
affecting the changes in operating results during the three-year period.
2001 VERSUS 2000
(Dollars in Thousands) 2000 to
2001
2001 2000 Change
-----------------------------------------------------
Net Sales $ 48,934 100.0% $ 75,315 100.0% (35.0%)
Cost of goods sold 38,184 78.0% 56,719 75.3% (32.7%)
Gross profit 10,750 22.0% 18,596 24.7% (42.2%)
Selling and promotion expenses 1,209 2.5% 927 1.2% 30.4%
General and administrative expenses 8,689 17.8% 7,409 9.9% 17.3%
Operating Income 852 1.7% 10,260 13.6% (91.7%)
Interest expense (547) (1.1%) (864) (1.1%)
(36.7%)
Other Income 293 0.6% 82 0.1% 257.3%
Income before taxes
and minority interest 598 1.2% 9,478 12.6%
(93.7%)
Minority interest (70) (0.2%) (4,918) (6.5%) (98.6%)
Income tax expense (26) -- (379) (0.5%) (92.9%)
Income from continuing operations $ 502 1.0% $ 4,181 5.6% (88.0%)
Continuing Operations:
Net sales decreased $26.4 million and 35.0% to $48.9 million in 2001.
The OEM automotive supply segment sales decreased $29.4 million in 2001 due to
an unanticipated GM model year changeover that shutdown the Company's Texas
facility for the first half of fiscal 2001. In addition, the slowdown in the
economy and the decline in demand in the automotive industry had an unfavorable
impact on OEM automotive supply sales. Conversion vehicle parts sales increased
$3.0 million to $5.2 million in 2001 due to the start-up of the Company's
conversion kit business and higher international sales.
The OEM automotive supply sales generated $8.3 million less gross profit in
2001. Gross profit from conversion vehicle parts sales increased $0.4 million.
Selling expenses increased $0.3 million. General and administrative expenses
increased $1.3 million primarily to support the additional OEM automotive supply
plant.
Interest expense decreased $317,000 due to lower interest rates and lower
borrowing levels required to support lower sales levels. Minority interest
results from the Company owning only 50% of the OEM automotive supply business.
Tax expense for 2001 and 2000 is comprised of state income taxes. The Company
did not record any federal income tax expense in 2001 and 2000 due to existing
tax credit carry forwards generated from prior years' losses.
STARCRAFT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Discontinued Operations:
The conversion vehicle and bus and mobility vehicle businesses reported losses
of $3.7 million and $8.5 million for 2001 and 2000, respectively. The conversion
vehicle segment was sold in May 2001 and the bus and mobility businesses were
sold in August 2001. The loss for 2001 is net of a gain on the sale of the bus
and mobility business of $0.4 million, including a gain of $0.3 million from the
early extinguishments of term debt. No material gain or loss was recognized upon
the sale of the conversion vehicle segment.
2000 VERSUS 1999
(Dollars in Thousands) 1999 to
2000
2000 1999 Change
--------------------------------------------------------------
Net Sales $ 75,315 100.0% $ 36,383 100.0% 107.0%
Cost of goods sold 56,719 75.3% 28,105 77.3% 101.8%
Gross profit 18,596 24.7% 8,278 22.7% 124.6%
Selling and promotion expenses 927 1.2% 397 1.1% 133.5%
General and administrative expenses 7,409 9.9% 4,047 11.1% 83.1%
Operating income 10,260 13.6% 3,834 10.5% 167.6%
Interest expense (864) (1.1%) (719) (1.9%) 20.2%
Other Income 82 0.1% 115 0.3% (28.7%)
Income before taxes
and minority interest 9,478 12.6% 3,230 8.9% 0.4%
Minority interest (4,918) (6.5%) (2,448) (6.7%) --
Income tax (expense) credit (379) (0.5%) 21 -- --
Income from continuing operations $ 4,181 5.6% $ 803 2.2% 420.7%
Net sales increased $38.9 million and 107.0% to $75.3 million in 2000.
The OEM automotive supply segment sales increased $40.4 million in 2000 from
1999. The OEM automotive supply business operated under two customer contracts
during 2000. In 1999 only one customer contract was in place for most of the
year while a second contract started up at the end of 1999. Conversion vehicle
parts sales declined $1.5 million in 2000 primarily due to lower international
parts and Canadian kit sales.
The $10.3 million increase in gross profit resulted from the higher OEM
automotive supply sales.
Selling expenses increased $0.5 million to support higher sales in the OEM
automotive supply segment. General and administrative expenses increased $3.4
million due to increased salaries and other expenses to support the rapid growth
in the OEM automotive supply segment.
Interest expense increased $145,000 due to higher borrowing levels to fund the
OEM automotive supply segment sales growth and higher interest rates. Minority
interest results from the Company owning only 50% of the OEM automotive supply
business. Tax expense in 2000 is comprised of state income taxes. The Company
did not record any federal income tax expense in 2000 due to existing tax credit
carry forwards generated from prior year losses. The income tax credit recorded
in 1999 is due to deferred tax changes.
Discontinued Operations:
The conversion vehicle and bus and mobility business reported losses of $8.5
million and $0.6 million for 2000 and 1999, respectively.
STARCRAFT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
SEASONALITY AND TRENDS
The Company's OEM automotive supply business sales and profits are dependent on
the automotive markets in the United States. The business is influenced by a
number of factors including OEM plant shutdowns, model year changeovers,
atypical weather for any sales region, interest rates, gasoline prices, and OEM
programs affecting price and supply. The OEM automotive supply segment is
dependent upon long-term contract business. The business' current contracts
expire through 2006.
In 1997 the Company began a plan to diversify both its product base and target
markets as it acquired National Mobility Corporation. In 1998 the Company
continued to pursue diversification strategy with the introduction of the
shuttle bus product and the start-up of the OEM automotive supply business. The
Company planned to continue to develop these new products and to increase its
product offerings in the vehicle conversion commercial market.
The conversion vehicle market continued to decline during 2000 and accordingly,
the Company sustained significant losses. With a market recovery unlikely in the
short term, management reassessed its strategy for the conversion vehicle
business and disposed of that business in May 2001. In August of 2001 the
Company sold its bus and mobility business and paid off its long-term debt and
reduced the amounts outstanding under its revolving credit agreement. The sale
allowed the Company to eliminate excess capacity and reduce overhead.
The Company intends to focus on its OEM automotive supply business and expects
to be profitable in 2002. If future actual results fail to meet management's
plan, additional losses could occur.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities consumed $6.6 million in cash in 2001 compared to
generating $4.8 million in cash in 2000. Cash was consumed as receivables
increased $2.2 million in 2001 primarily due to the increase in fourth quarter
sales in the OEM automotive supply segment. Additional cash was consumed by
losses from discontinued operations of $4.0 million.
The Company invested $811,000 in property and equipment during the year
primarily for new plant start-ups. Proceeds generated from the sale of the
conversion vehicle and bus and mobility businesses were used to reduce bank
debt. As of September 30, 2001, bank debt was $8.9 million.
On October 30, 1998, the Company entered into a $14 million credit agreement
with a lending institution. The agreement was amended in December 2000 and 2001
as noted below. Revolving advances under the agreement were limited to specified
percentages of eligible receivables and inventories and are subject to a maximum
limit of $9.2 million. The credit agreement also included a $4.8 million term
loan which was payable in monthly principal installments of $57,000 beginning
December 1, 1998.
On November 23, 1998, the Company entered into an amended credit agreement with
its former primary lender. The agreement called for all borrowings over $3
million to be paid with proceeds from the $14 million refinancing described
above. The remaining $3 million was payable in monthly principal installments of
$36,000 beginning December 1, 1998. The note bore interest at 2% over the bank's
prime rate and was subordinate to the $14 million credit agreement described
above. The note was partially guaranteed by two individuals, one of whom is a
director and officer of the Company and the other is an outside director. As
incentive for their guarantees, the Company issued to the individuals warrants
to purchase a total of 400,000 shares in Common Stock for $2.20 per share. The
warrants have a five-year term and are exercisable at the date of the grant.
STARCRAFT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
On December 20, 2000 the Company and its subsidiary, Tecstar, amended their
credit agreements with their primary lending institution. The amended agreements
increase the maximum amount of the combined loans from $14 million to $22
million and extend the term of the revolving advances to December 2005 for the
Company, and November 2004 for Tecstar. The revolving borrowings bear interest
ranging from 1/2% to 3/4% over prime. The prime rate was 6.5% at September 30,
2001. The borrowings are secured by substantially all of the Company's assets.
There is a fee of .25% on the unused portion of the maximum borrowing amount.
The amendments allow Tecstar to advance funds and distribute earnings to the
Company if certain conditions are met, and expand the borrowing base against
which Tecstar may receive advances under the revolver. A portion of the
Company's loan is guaranteed by two individuals, both of whom are currently
directors and one of whom is an officer and employee of the Company. As
incentive for their guarantees, the Company issued to the individuals options to
purchase a total of 500,000 shares of Common Stock for $3.00 per share.
The term loans from the primary lender and former primary lending institution
were paid off with proceeds from the sale of the Company's bus and mobility
business. In conjunction with the payoff of the term loan and reduction in the
amounts outstanding in September 2001, the Company agreed to payoff any
revolving advances outstanding to its lender at December 31, 2001 instead of
December 2005. On December 5, 2001, the lending institution granted an extension
of time to June 30, 2002. The Company believes it will find a suitable lender
and obtain adequate financing at or before that time. Amounts due under the
revolver at September 30, 2001 subject to refinancing were $814,000. Unused
availability, at September 30, 2001, under the Company's and subsidiary's
revolvers were $1.0 million and $1.9 million, respectively.
The agreement described above is also subject to various covenants with which
the Company is in compliance or for which it obtained waivers as of December 5,
2001.
At September 30, 2001, the balance sheet included $1.75 million of trade debt
remaining from the sale of the conversion vehicle business. The Company is
paying off these obligations in amounts satisfactory to its vendors over the
next fiscal year. The Company believes that future cash flows from operations
and funds available under its revolving credit agreement, and refinanced credit
facilities will be sufficient to satisfy its anticipated operating needs and
capital improvements for 2002.
The Company believes that its objectives for growth over the next few years can
be accomplished with minimal capital investment and that its internal resources
and existing or refinanced credit facilities will provide sufficient liquidity
for such purposes.
DISCUSSION OF FORWARD-LOOKING INFORMATION
The discussion above includes forward-looking statements respecting domestic and
international market and economic trends, the Company's products and marketing
plans, anticipated capital expenditures, the adequacy of capital resources and
other matters. From time to time, Starcraft may make oral or written
forward-looking statements regarding its anticipated sales, costs, expenses,
earnings and matters affecting its condition and operations. All such
forward-looking statements are subject to a number of material factors which
could cause the statements or projections contained therein to be materially
inaccurate. Such factors include, without limitation, the following:
General Operating Contingencies. The Company may not be able to attract and
retain employees with sufficient skills to conduct its operations efficiently
and may from time to time be subject to work slow-downs or stoppages. The
Company may be adversely affected by delay or unavailability of supply of
numerous component parts. The Company will not always be able to satisfy its
capital requirements with internally generated funds and may, from time to time,
need to rely on bank financing and other third party capital resources. There is
no assurance that such resources will always be available to the Company or as
to the terms that will apply to any financing, or as the Company's ability to
continue to comply with such terms over time.
STARCRAFT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Acquisitions and Diversification. The Company may be engaged in negotiations
from time to time regarding prospective acquisitions of related businesses. Such
acquisitions could be material to the Company and, if effected, could have a
material effect on the Company's financial condition or results of operations.
There is no assurance as to when or whether the Company will be able to effect
acquisitions, whether it will be able to generate requisite funding to effect
such acquisitions, or as to the terms on which such acquisitions may be
effected. The Company may have less experience manufacturing and marketing such
acquired products than it has in its business. There is no assurance that such
new acquisitions will be profitable.
Economic Conditions. The level of disposable consumer income affects the
Company's sales because its products are generally considered discretionary
expenditures by consumers. In difficult economic times, consumers tend to spend
less of their income on discretionary items. Other economic factors affecting
the demand for the Company's products include the availability and price of
gasoline, the level of interest rates and the availability of consumer
financing.
Reduced gasoline availability could adversely affect the demand for the
Company's products. A significant increase in the price of gasoline could reduce
demand for the Company's products because it would increase the cost of
operating these products. Because many consumers finance their purchase of
vehicle conversions, the availability of financing and level of interest rates
can affect a consumer's purchasing decision. A decline in general economic
conditions or consumer confidence can be expected to affect Starcraft's sales
adversely.
OEM Automotive Supply Segment. All of the Company's OEM automotive supply sales
in 2001, 2000 and 1999 were to General Motors. The Company's OEM automotive
supply sales are directly impacted by the size of the automotive industry and
GM's market share. Further, GM periodically reduces production or closes plants
for several months for model changeovers. During the fourth quarter of fiscal
year 2000, one of the Company's two manufacturing facilities was substantially
shut down as a result of GM's model changeover. This adversely affected the
Company's fourth quarter results. The shut down continued through the second
quarter of fiscal 2001. A decline in sales in the automotive market or in GM's
automotive sales, or production cutbacks and plant shut downs for model
changeovers by GM, could have an adverse impact on the Company's sales and
profits. Sales of the automotive supply segment are subject to long-term
contracts with GM. Continued sales and growth of this segment is subject to the
Company's ability to continue to satisfactorily perform and to obtain such
contracts over time.
Regulation. The Company is subject to various foreign, federal, state and local
regulations. The Company must comply with certain Federal and state regulations
relating to the disposition of hazardous wastes generated in its production
processes. The Company's failure to comply with applicable regulations or
changes in current regulations, including the adoption of new safety or
environmental standards, could have material adverse effect on the Company's
results of operations.
Competition. The OEM Automotive Supply business is also highly competitive with
several large companies competing in this market. There is no assurance the
Company will be able to maintain its current competitive position in this
market.
Potential Product Liability. Like other automotive manufacturers, the Company
may be subject to claims that its products caused or contributed to damage or
injury sustained in vehicle accidents or may be required to recall products
deemed unsafe. Any such claims in excess of the Company's insurance coverage or
material product recall expenses could adversely affect the Company's financial
condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STARCRAFT CORPORATION AND SUBSIDIARIES
Goshen, Indiana
FINANCIAL STATEMENTS
September 30, 2001, October 1, 2000 and October 3, 1999
CONTENTS
REPORT OF INDEPENDENT AUDITORS .............................................. 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ............................................ 2
CONSOLIDATED STATEMENTS OF OPERATIONS .................................. 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ........................ 5
CONSOLIDATED STATEMENTS OF CASH FLOWS .................................. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ............................. 7
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Starcraft Corporation and Subsidiaries
Goshen, Indiana
We have audited the accompanying consolidated balance sheets of Starcraft
Corporation and Subsidiaries as of September 30, 2001 and October 1, 2000 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years ended September 30, 2001, October 1, 2000 and October
3, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Starcraft Corporation and Subsidiaries as of September 30, 2001 and October 1,
2000 and the consolidated results of their operations and their cash flows for
the years ended September 30, 2001, October 1, 2000 and October 3, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Elkhart, Indiana
November 21, 2001, except for
Note 4 as to which the date
is December 5, 2001
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and October 1, 2000
- --------------------------------------------------------------------------------
2001 2000
---- ----
(dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 300 $ 1,294
Accounts receivable
Trade, less allowance for
doubtful accounts: 2001 - $170; 2000 - $255 11,200 10,523
Tooling and engineering services 430 2,110
Manufacturers' rebates receivable 109 329
Notes receivable 421 -
Inventories 4,636 10,629
Other 1,408 1,153
---------- ----------
Total current assets 18,504 26,038
Property and equipment
Land, buildings and improvements 2,014 6,604
Machinery and equipment 4,091 6,794
---------- ----------
6,105 13,398
Accumulated depreciation 2,801 5,752
---------- ----------
3,304 7,646
Goodwill, at amortized cost - 1,160
Other assets 202 150
---------- ----------
$ 22,010 $ 34,994
========== ==========
- --------------------------------------------------------------------------------
(Continued)
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30, 2001 and October 1, 2000
- --------------------------------------------------------------------------------
2001 2000
---- ----
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 814 $ -
Current maturities of long-term debt - 1,114
Accounts payable, trade 11,998 16,814
Accrued expenses
Warranty 763 3,028
Compensation and related expenses 249 766
Taxes 912 1,088
Indemnification reserve 472 -
Other 1,256 1,063
---------- ----------
Total current liabilities 16,464 23,873
Long-term debt 8,092 9,957
Commitments and contingencies - -
Minority interest in subsidiary 157 1,087
Shareholders' equity
Preferred stock, no par value: 2,000,000 shares
authorized but unissued - -
Common stock, no par value:
Authorized shares - 10,000,000 shares
issued and outstanding shares - 2001 - 4,255,059;
2000 - 4,245,059 14,401 14,382
Additional paid-in capital 1,386 1,008
Accumulated deficit (18,490) (15,313)
---------- ----------
(2,703) 77
---------- ----------
$ 22,010 $ 34,994
========== ==========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 2001, October 1, 2000 and October 3, 1999
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
(dollars in thousands, except per share data)
Net sales $ 48,934 $ 75,315 $ 36,383
Cost of goods sold 38,184 56,719 28,105
------------ ------------ ------------
Gross profit 10,750 18,596 8,278
Operating expenses
Selling and promotion 1,209 927 397
General and administrative 8,689 7,409 4,047
------------ ------------ ------------
Operating income 852 10,260 3,834
Nonoperating (expense) income
Interest (547) (864) (719)
Other income, net 293 82 115
------------ ------------ ------------
(254) (782) (604)
------------ ------------ ------------
Income before minority interest
and income taxes 598 9,478 3,230
Minority interest 70 4,918 2,448
------------ ------------ ------------
Income from continuing operations before
income taxes 528 4,560 782
Federal and state income taxes (benefit) 26 379 (21)
------------ ------------ ------------
Income from continuing operations 502 4,181 803
Loss from discontinued operations, net of income
tax expense (benefit) of $24 in 2001, $60 in 2000
and $(30) in 1999 (4,031) (8,528) (281)
Gain on sale of discontinued business, net of income
tax of $-0- 352 - -
------------ ------------ ------------
Net income (loss) $ (3,177) $ (4,347) $ 522
============ ============ ============
Earnings (loss) per common share, basic $ (.75) $ (1.03) $ .13
Earnings (loss) per common share, assuming dilution $ (.75) $ (1.03) $ .12
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 2001, October 1, 2000 and October 3, 1999
- --------------------------------------------------------------------------------
Outstanding Additional
Common Common Paid-In Accumulated
Shares Stock Capital Deficit Total
------ ----- ------- ------- -----
---------------(dollars in thousands)--------------
Balance, September 28, 1998 4,133,600 $ 14,016 $ 1,008 $ (11,488) $ 3,536
Net income - - - 522 522
Issuance of 43,328 shares of
common stock 43,328 128 - - 128
-------------- ---------- ---------- ---------- ----------
Balance, October 3, 1999 4,176,928 14,144 1,008 (10,966) 4,186
Net loss - - - (4,347) (4,347)
Issuance of 68,131 shares of
common stock 68,131 238 - - 238
-------------- ---------- ---------- ---------- ----------
Balance, October 1, 2000 4,245,059 14,382 1,008 (15,313) 77
Net loss (3,177) (3,177)
Stock option compensation - - 378 - 378
Issuance of 10,000 shares of
common stock 10,000 19 - 19
-------------- ---------- ---------- ---------- ----------
Balance, September 30, 2001 4,255,059 $ 14,401 $ 1,386 $ (18,490) $ (2,703)
============== ========== ========== ========== ==========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2001, October 1, 2000 and October 3, 1999
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
(dollars in thousands)
Cash flows from operating activities
Income from continuing operations $ 502 $ 4,181 $ 803
Adjustments to reconcile income from continuing
operations to net cash from operating activities
Additional paid-in capital stock options 378 - -
Depreciation and amortization 1,241 1,031 1,065
Deferred income taxes - - (331)
Minority interest (930) (611) 1,698
Changes in operating assets and liabilities
Receivables (2,174) 4,114 (9,930)
Inventories (43) 5,748 (5,520)
Accounts payable (3) (1,682) 10,252
Accrued expenses (1,273) 1,512 (266)
Other (307) (983) (65)
------------ ------------ ------------
Net cash from continuing operations (2,609) 13,310 (2,294)
Net loss from discontinued operations (4,031) (8,528) (281)
------------ ------------ ------------
Net cash from operating activities (6,640) 4,782 (2,575)
Cash flows from investing activities
Purchase of property and equipment (811) (962) (1,024)
Proceeds from sale of property and equipment 5 200 67
Proceeds from sale of conversion vehicle business 277 - -
Proceeds from sale of bus and mobility vehicle business 8,000 - -
------------ ------------ ------------
Net cash from investing activities 7,471 (762) (957)
Cash flows from financing activities
Proceeds from revolving credit agreement 7,657 6,755 8,664
Payments of revolving credit agreement (4,065) (9,189) (4,915)
Payments of long-term debt (5,436) (1,058) (986)
Issuance of common stock 19 166 -
------------ ------------ ------------
Net cash from financing activities (1,825) (3,326) 2,763
------------ ------------ ------------
Net change in cash and cash equivalents (994) 694 (769)
Cash and cash equivalents at beginning of year 1,294 600 1,369
------------ ------------ ------------
Cash and cash equivalents at end of year $ 300 $ 1,294 $ 600
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid$ 1,335 $ 1,380 $ 1,411
Income taxes paid (refunded) 259 454 (360)
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, October 1, 2000 and October 3, 1999
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Principles of Consolidation: Starcraft Corporation and
Subsidiaries (Company) are second stage manufacturers of pickup truck and sport
utility vehicles to an original equipment manufacturer ("OEM automotive
supply"). The Company also supplies service parts and conversion kits to the
custom van and pickup truck conversion market ("conversion vehicle parts"). The
consolidated financial statements include the accounts of Starcraft Corporation
and its wholly owned subsidiaries: Starcraft Automotive Group, Inc., Imperial
Automotive Group, Inc. (Imperial), Starcraft Southwest, Inc., and National
Mobility Corporation. The Company has a 50% ownership interest in Tecstar, LLC
(Tecstar) which is an OEM automotive supplier. The accounts of Tecstar are also
included in these consolidated financial statements as the Company exercises
effective control over Tecstar's financial policies through its representation
on the Board of Managers, participation in policymaking processes, and
interchange of managerial personnel. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company's customers operate primarily in the automotive industry. The OEM
automotive supply segment sales are to one customer in the United States. The
Company's conversion vehicle parts segment sells product throughout North
America, and export sales are principally to locations in Asia and northern
Europe. Credit is extended to customers based on an evaluation of the customer's
financial condition, and when credit is extended collateral generally is not
required.
The Company decided, in fiscal 2001, to discontinue two segments. The Company
sold its conversion vehicle business on May 25, 2001, for no gain or loss, and
its shuttle bus and mobility vehicle business on August 31, 2001 for a after tax
gain of $352. The results of operations of these businesses are recorded as
discontinued operations.
Discontinued operations had the following effect on sales and gross profit.
2001 2000 1999
---- ---- ----
Net sales $ 33,483 $ 52,026 $ 53,121
Gross profit (loss) 1,163 (1,300) 6,678
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Statements of Cash Flows - Noncash Activities: During 2001, the Company recorded
$378 of compensation expense for stock options issued to a director of the
Company and the Company received $527 of notes receivable as proceeds in the
sale of its conversion vehicle business (see Note 2). During 2000, the Company
issued 9,131 shares of common stock with a value of $72 to its 401(k) plan.
During 1999, the Company issued 29,926 shares of common stock with a value of
$90 to its 401(k) plan and issued 13,402 shares of common stock with a value of
$38 under the directors share plan.
Cash Equivalents and Concentrations: Cash equivalents include all highly liquid
investments with a maturity when purchased of three months or less. The first
$100 of deposits in each financial institution is insured by an agency of the
U.S. Government.
Tooling and Engineering Services Receivable: Tooling and engineering services
provided by third parties to Tecstar are reimbursed by Tecstar's customer and a
receivable is recorded for such costs.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for certain inventories ($308
and $8,898 at September 30, 2001 and October 1, 2000, respectively) and by the
first-in, first-out (FIFO) method for all other inventories.
Property and Equipment: Property and equipment are stated at cost. Depreciation
is computed principally by the straight-line method over the estimated useful
lives of the assets. The Company is depreciating buildings over periods of 15 to
50 years, building improvements over periods of 5 to 20 years, and equipment
over periods of 3 to 12 years.
Goodwill: Goodwill was amortized by the straight-line method over a period of 15
years and was stated net of accumulated amortization of $350 at October 1, 2000.
The Company evaluated the recoverability based on undiscounted projected
operating cash flows when factors indicated an impairment existed. The Company
wrote off the balance of goodwill of $1,070 at the time it sold the bus and
mobility business. The write-off was netted against the gain on the sale of the
discontinued business.
Warranties: The Company follows the policy of accruing an estimated liability
for warranties at the time the warranted products are sold.
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Revenue Recognition: The Company generally manufactures products based on
specific orders from customers. Shipments are generally made by common carrier
after receiving authorization from the customer, and revenue is recognized upon
shipment under FOB factory terms.
Income Taxes: Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109 which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities. A valuation allowance adjusts deferred
tax assets to the net amount that is more likely than not to be realized.
Stock Based Compensation: The Company periodically grants stock options for a
fixed number of shares to employees and directors. The Company accounts for
stock option grants in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related FASB
Interpretation #44 "Accounting for Certain Transactions Involving Stock
Compensation".
Use of Estimates: Preparation of the financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. Management makes estimates for
indemnification, warranty and contingency reserves, allowance for doubtful
accounts, impairment of property, plant, equipment and goodwill, and
depreciation expense.
Earnings Per Common Share: Basic earnings per common share is based on net
income available to common shareholders divided by the weighted average number
of common shares considered to be outstanding during the period. The weighted
average number of common shares outstanding were 4,245,216, 4,214,208 and
4,158,651 for the years ended September 30, 2001, October 1, 2000 and October 3,
1999, respectively. Diluted earnings per common share shows the dilutive effect
of any additional potential common shares issuable under stock options. For the
years ended September 30, 2001 and October 1, 2000, the effect of the stock
options in computing earnings per common share was antidilutive.
Fiscal Year: The Company's fiscal year ends on the Sunday closest to September
30. The years ended September 30, 2001 and October 1, 2000 consisted of 52 weeks
and the year ended October 3, 1999 consisted of 53 weeks.
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Recently Enacted Accounting Standards: New accounting guidance for derivatives
was effective October 2, 2000. All derivative instruments are recorded in the
balance sheet at their fair value. Changes in the fair value of derivatives are
required to be recorded each period in current earnings or other comprehensive
income, depending on whether the derivative is designated as part of a hedge
transaction. There was no effect of adopting this standard on October 2, 2000.
On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets", which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 142 primarily addresses the
accounting for goodwill and other intangible assets subsequent to their
acquisition. The most significant changes made by SFAS No. 142 are (1) goodwill
and indefinite lived intangible assets will no longer be amortized, (2) goodwill
will be tested for impairment at least annually at the reporting unit level, (3)
other intangible assets deemed to have an indefinite life will be tested for
impairment at least annually, and (4) the amortization period of intangible
assets with finite lives will no longer be limited to forty years. Management
does not expect a material impact on the Company's financial statements from the
adoption of SFAS No. 142.
Fair Value of Financial Instruments: The Company's carrying amount for its
financial instruments, which include cash, accounts receivable, accounts payable
and long-term debt, approximates fair value.
NOTE 2 - NOTE RECEIVABLE
As part of the May 25, 2001 sale of the Company's conversion vehicle business,
the Company financed $527 of the sales price and received three secured
promissory notes from the buyer. The notes bear interest at the National prime
rate plus 1% and are collateralized by a security interest in substantially all
the buyer's assets. The Company's security is subordinate to the buyer's lending
institution. Two of the notes, aggregating $104, were paid in full subsequent to
September 30, 2001. The third note is payable in equal monthly installments
through May 25, 2002 at which time any remaining balance is due.
NOTE 3 - INVENTORIES
The composition of inventories at September 30, 2001 and October 1, 2000 is as
follows:
2001 2000
---- ----
Raw materials $ 4,582 $ 6,453
Chassis - 2,499
Work-in-process - 841
Finished goods 262 1,756
-------- ---------
` 4,844 11,549
Allowance for slow-moving and obsolete inventories 208 920
-------- ---------
$ 4,636 $ 10,629
======== =========
NOTE 4 - DEBT ARRANGEMENTS
On October 30, 1998, the Company entered into a $14 million credit agreement
with a lending institution. The agreement was amended in December 2000 and 2001
as noted below. Revolving advances under the agreement were limited to specified
percentages of eligible receivables and inventories and was subject to a maximum
limit of $9.2 million. The credit agreement also included a $4.8 million term
loan which was payable in monthly principal installments of $57 beginning
December 1, 1998.
On November 23, 1998, the Company entered into an amended credit agreement with
its former primary lender. The agreement called for all borrowings over $3
million to be paid with proceeds from the $14 million refinancing described
above. The remaining $3 million was payable in monthly principal installments of
$36 beginning December 1, 1998.
On December 20, 2000 the Company and its subsidiary, Tecstar, amended their
credit agreements with their primary lending institution. The amended agreements
increase the maximum amount of the combined loans from $14 million to $22
million and extend the term of the revolving advances to December 2005 for the
Company, and November 2004 for Tecstar. The revolving borrowings bear interest
ranging from 1/2% to 3/4% over prime. The prime rate was 6.5% at September 30,
2001. The borrowings are secured by substantially all of the Company's assets.
There is a fee of .25% of the average unused portion of the maximum borrowing
amount. The amendments allow Tecstar to advance funds and distribute earnings to
the Company if certain conditions are met, and expand the borrowing base against
which Tecstar may receive advances under the revolver. A portion of the
Company's loan is guaranteed by two individuals, both of whom are currently
directors and one of whom is an officer and employee of the Company. As
incentive for their guarantees, the Company issued, to the individuals, options
to purchase a total of 500,000 shares of Common Stock for $3.00 per share.
NOTE 4 - DEBT ARRANGEMENTS (Continued)
The term loans from the primary lender and former primary lending institution
were paid off with proceeds from the sale of the Company's bus and mobility
business. In conjunction with the payoff of the term loan and reduction in the
amounts outstanding in September 2001, the Company agreed to payoff any
revolving advances outstanding to its lender at December 31, 2001 instead of
December 2005. On December 5, 2001, the lending institution granted an extension
of time to June 30, 2002. The Company believes it will find a suitable lender
and obtain adequate financing at that time. Amounts due under the revolver at
September 30, 2001 subject to refinancing were $814,000. Unused availability, at
September 30, 2001, under the Company's and subsidiary's revolvers was $1.0
million and $1.9 million, respectively.
The agreement described above is also subject to various covenants with which
the Company is in compliance or for which it obtained waivers as of December 5,
2001.
The carrying amount of the Company's long-term debt approximates fair value.
Debt is due as follows:
Fiscal Year Ending
------------------
2002 $ 814
2003 -
2004 -
2005 8,092
NOTE 5 - INCOME TAXES
Federal and state income taxes (benefit) allocated to continuing operations, all
of which were domestic, consist of the following:
2001 2000 1999
---- ---- ----
Current
Federal $ - $ - $ -
State 26 379 115
------------ ------------ ------------
26 379 115
Deferred
Federal - - (119)
State - - (17)
------------ ------------ ------------
- - (136)
------------ ------------ ------------
$ 26 $ 379 $ (21)
============ ============ ============
The provisions for income taxes are different from amounts that would otherwise
be computed by applying a federal statutory rate of 34% to income from
continuing operations before income taxes. A reconciliation of the differences
is as follows:
2001 2000 1999
---- ---- ----
Rate applied to pretax income from
continuing operations $ 180 $ 1,550 $ 266
State income taxes - net 17 250 65
Utilization of net operating loss (182) (1,436) (364)
Other, net 11 15 12
--------- -------- --------
$ 26 $ 379 $ (21)
========= ======== ========
NOTE 5 - INCOME TAXES (Continued)
The composition of the deferred tax assets and liabilities at September 30, 2001
and October 1, 2000 is shown below:
2001 2000
---- ----
Deferred tax liabilities
Accelerated depreciation $ (306) $ (566)
Inventory basis difference - (331)
-------- --------
(306) (897)
Deferred tax assets
Inventories 246 388
Nondeductible accruals
Warranty 181 858
Other 502 410
Goodwill 84 1,295
Alternative minimum tax credit carryforward 278 220
Net operating loss carryforward 6,221 4,056
-------- --------
Total deferred tax assets 7,512 7,227
Valuation allowance (7,206) (6,330)
-------- --------
306 897
-------- --------
Net deferred tax asset (liability) $ - $ -
======== ========
The alternative minimum tax carryforward of $278 has no expiration date. The net
operating loss carryforward expires as follows: $6,015 in 2018, $1,001 in 2019,
$2,659 in 2020 and $6,276 in 2021.
NOTE 6 - COMPENSATION PLANS
The Company sponsors a qualified profit-sharing plan, more commonly known as a
401(k) plan, for all of its employees with over six months of service. The plan
provides for a discretionary matching contribution by the Company of the
employee's salary deduction, up to 6% of compensation. Also, the plan provides
for an additional discretionary contribution annually as determined by the Board
of Directors. The amounts charged to expense for this plan were approximately
$144 and $90 in 2000 and 1999, respectively. There was no discretionary matching
contribution by the Company in 2001.
NOTE 7 - STOCK OPTIONS
The Company maintains two stock incentive plans under which stock options are
granted to key employees and directors. The plans authorize the granting of
stock options for up to 880,000 shares of the Company's common stock. The
options in these two plans have five year terms and generally become fully
exercisable after six months. The Company also sponsors a stock option plan with
40,000 shares of common stock reserved for options to certain sales
representatives who are not employees of the Company. In fiscal 2001, 11,000
options were issued under the plan. No compensation expense was recorded as the
effect was immaterial. These options have five year terms.
Under the three plans, options may not be granted at prices below 85% of the
current market value of the stock at the date of grant. All options awarded
through September 30, 2001 have been at fair market value on the date of grant.
On November 20, 1998 the Company issued options to purchase shares of common
stock to two individuals as incentive for their partial guarantee of the
Company's long-term debt. The individuals can each purchase up to 200,000 shares
of common stock of the Company for $2.20 per share, which was the ten day,
average market price preceding the date of grant. The options have a five year
term.
On December 12, 2000 the Company issued stock options to purchase shares of
common stock to two individuals as incentive for their partial guarantee of the
Company's long-term debt (See Note 4). The individuals can each purchase up to
250,000 shares of common stock of the Company for $3.00 per share, which was the
twenty-day, average market price preceding the date of grant. The options have a
five year term.
A summary of the Company's stock option activity and related information under
the plans discussed above for the years ended September 30, 2001, October 1,
2000 and October 3, 1999 follows:
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding at
beginning of year 1,082,849 $ 3.50 969,849 $ 2.86 452,849 $ 3.97
Granted 962,000 2.99 277,000 6.83 562,500 2.15
Canceled (294,566) 4.26 (26,500) 4.88 (31,500) 3.72
Exercised (10,000) 1.88 (59,000) 2.83 - -
Expired (27,000) 4.81 (78,500) 7.44 (14,000) 8.33
------------ ------- ----------- -------- ----------- -------
Outstanding at
end of year 1,713,283 $ 3.07 1,082,849 $ 3.50 969,849 $ 2.86
============ ======= =========== ======== =========== =======
Exercisable at end of year 1,394,042 $ 2.95 905,943 $ 2.83 959,849 $ 2.85
============ ======= =========== ======== =========== =======
NOTE 7 - STOCK OPTIONS (Continued)
As of September 30, 2001, there were 608,783 options outstanding with exercise
prices that ranged from $1.35 to $2.31. The weighted-average exercise price of
these options is $2.02, and the weighted-average remaining contractual life is
2.2 years. As of September 30, 2001, there were 1,104,500 options outstanding
with exercise prices that ranged from $2.88 to $7.50. The weighted-average
exercise price of these options is $3.65, and the weighted-average remaining
contractual life is 4.2 years.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Under APB 25, no compensation expense
has been recognized because the exercise price of the Company's stock options
has equaled the market price of the underlying stock on the date of grant.
Proforma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("FAS 123")
and has been determined as if the Company had accounted for its stock options
issued in fiscal 1996 through 2001 under the fair value method of FAS 123. The
fair value was estimated as of the date of grant using a Black-Scholes option
pricing model with the following assumptions:
2001 2000 1999
---- ---- ----
Risk-free interest rate 5.35% - 5.88% 5.23% - 6.79% 4.43% - 5.86%
Dividend yield 0% 0% 0%
Volatility factor 75.94% - 94.61% 75.88% - 77.83% 62.4% - 70.9%
Expected option life 4 years 4 years 3-4 years
For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's proforma
information follows:
2001 2000 1999
---- ---- ----
Proforma net loss $ (4,316) $ (5,165) $ (65)
Proforma net loss per share, basic $ (1.02) $ (1.23) $ (0.02)
Proforma net loss per share, diluted $ (1.02) $ (1.23) $ (0.02)
NOTE 8 - SHAREHOLDER RIGHTS PLAN
In August 1997, the Company adopted a Shareholders Rights Plan issuing one right
for each outstanding share. Each right entitles the registered holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment. The rights become exercisable if a person or group (other than
certain related persons) acquires or announces a tender offer for prescribed
percentages of the Company's shares or is declared an "adverse person" by the
Company's Board of Directors. In these events, each right holder may purchase
shares with a value equal to twice the exercise price. Furthermore, if the
Company engages in certain mergers or similar business combinations a right
holder may purchase shares of the acquiring company with a value to two times
the purchase price of the right. The rights expire on August 12, 2007.
NOTE 9 - CONSIGNMENT ARRANGEMENTS
The Company obtained vehicle chassis for modification from major vehicle
manufacturers (OEMs) under consignment and restricted sales agreements. These
agreements generally provide that (i) the Company may not obtain certificates of
origin or other evidence of ownership of chassis, (ii) modification must conform
to standards specified by OEMs, and (iii) modifications generally are performed
only after a sale has been negotiated with an OEM approved dealer. The Company
generally shipped converted chassis only after dealer acceptance was approved by
the OEM. The OEMs billed the dealer and provided warranty for the chassis.
Consistent with the practice in the industry, the Company accounted for chassis
as consignment inventory. Accordingly, the Company recorded chassis inventory
and related obligations only in the event they were required to purchase chassis
from the OEM. Provisions for decline in chassis value were recognized when, in
management's estimation, such provisions were necessary. Provisions for decline
in chassis value, chassis inventory, and chassis sales were not material to the
accompanying financial statements. The Company did not record sales or cost of
sales for consigned chassis, except for certain bus chassis.
At September 30, 2001, the Company had possession of chassis in the aggregate
amount of $100. All consignment and restricted sales agreements were terminated
by November 15, 2001.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment. Rent expense charged
to continuing operations for 2001, 2000 and 1999 was $1,126, $841 and $470,
respectively. Rent expense charged to discontinued operations for 2001, 2000 and
1999 was $16, $92 and $197, respectively. Rental commitments at September 30,
2001 for long-term noncancelable operating leases are as follows:
2002 $ 1,000
2003 929
2004 548
2005 487
2006 87
------------
$ 3,051
The Company is subject to various legal proceedings and claims with respect to
such matters as product liabilities and other actions, which arise out of the
normal course of its business. Management and its legal counsel periodically
review the probable outcome of pending proceedings and the costs reasonably
expected to be incurred. The Company accrues for these costs when it is probable
that a liability has been incurred and the amount of the loss can be reasonably
estimated. In the opinion of management, any ultimate cost to the Company in
excess of amounts accrued will not materially affect its consolidated financial
position, results of operations or cash flows.
The Company's commitments with respect to its chassis arrangements are described
in Note 9.
NOTE 11 - RESEARCH AND DEVELOPMENT
The Company incurs costs to improve the appeal and safety of its products.
Research and development costs are charged to operations when incurred. Amounts
charged to continuing operations were $450, $181 and $-0- in 2001, 2000 and
1999, respectively. Amounts charged to discontinued operations were $610, $493
and $490 in 2001, 2000 and 1999, respectively.
NOTE 12 - UNAUDITED FINANCIAL INFORMATION
Presented below is certain unaudited quarterly financial information for
2001, 2000 and 1999.
Quarter Ended
December 31, April 1, July 1, September 30,
2000 2001 2001 2001
---- ---- ---- ----
Net sales $ 18,759 $ 23,225 $ 25,024 $ 15,409
Gross profit 1,533 2,415 4,340 3,625
Net income (loss) (2,146) (1,783) 1,214 (462)
Earnings (loss) per share (0.51) (0.42) 0.29 (0.11)
Earnings (loss) per share
assuming dilution (0.51) (0.42) 0.28 (0.11)
Quarter Ended
January 2, April 2, July 2, October 1,
2000 2000 2000 2000
---- ---- ---- ----
Net sales $ 36,193 $ 36,355 $ 33,081 $ 21,712
Gross profit (loss) 7,005 6,456 5,024 (1,189)
Net income (loss) 553 765 (277) (5,388)
Earnings (loss) per share 0.13 0.18 (0.07) (1.27)
Earnings (loss) per share
assuming dilution 0.12 0.16 (0.07) (1.27)
Quarter Ended
December 27, March 28, June 27, October 3,
1998 1999 1999 1999
---- ---- ---- ----
Net sales $ 12,134 $ 18,639 $ 28,112 $ 30,619
Gross profit 958 3,398 5,727 4,873
Net income (loss) (1,820) 122 1,490 730
Earnings (loss) per share (0.44) 0.03 0.36 0.17
Earnings (loss) per share
assuming dilution (0.44) 0.03 0.33 0.16
The sum of quarterly earnings per share may not equal annual earnings per share
due to changes in the diluted potential common shares.
NOTE 12 - UNAUDITED FINANCIAL INFORMATION (Continued)
The net loss for the quarter ended September 30, 2001 included a gain of $352
from the sale of the discontinued business.
The gross loss in the fourth quarter of the fiscal year ended October 1, 2000
was primarily due to the decline in sales resulting from the extended plant
shutdown, at one of Tecstar's plants, for a model year changeover.
NOTE 13 - OPERATING SEGMENT INFORMATION
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The Company has determined that its
reportable segments are those that are based on the Company's method of internal
reporting, which disaggregates its business by product category. The Company's
two reportable operating segments are conversion vehicle parts and OEM
automotive supply. The Company evaluates the performance of its segments and
allocates resources to them based on operating income. The accounting policies
of the segments are the same as those described in Note 1 and there are no
inter-segment revenues. Differences between reported operating segment income
amounts and consolidated net income (loss) represent corporate expenses for
administrative functions that are not allocated to segments, nonoperating income
or expense, and income taxes.
The table below presents information about segments used by the chief operating
decision maker of the Company for 2001, 2000 and 1999. This information has been
restated to conform with the presentation of discontinued operations:
2001 2000 1999
---- ---- ----
Net sales by geographic region:
OEM automotive supply
Domestic $ 43,694 $ 73,162 $ 32,700
Export - - -
Conversion vehicle parts
Domestic 4,953 2,014 3,402
Export 287 139 281
------------ ------------ ------------
$ 48,934 $ 75,315 $ 36,383
============ ============ ============
NOTE 13 - OPERATING SEGMENT INFORMATION (Continued)
2001 2000 1999
---- ---- ----
Operating segment income:
OEM automotive supply $ 347 $ 5,467 $ 3,240
Conversion vehicle parts 981 44 71
------------ ------------ ------------
$ 1,328 $ 5,511 $ 3,311
============ ============ ============
Total assets:
OEM automotive supply $ 17,504 $ 12,281
Conversion vehicle parts 4,506 4,550
Discontinued operations - 18,163
------------ ------------
$ 22,010 $ 34,994
============ ============
The following provides a reconciliation of segment information to consolidated
information.
2001 2000 1999
---- ---- ----
Operating segment income $ 1,328 $ 5,511 $ 3,311
Nonoperating expense (254) (782) (604)
Federal and state income (tax) credit (26) (379) 21
Unallocated corporate expenses (546) (169) (1,925)
------------ ------------- ------------
Income from continuing operations $ 502 $ 4,181 $ 803
============ ============ ============
The following specified amounts are included in the measure of segment income
reviewed by the chief operating decision maker:
2001 2000 1999
---- ---- ----
Depreciation and amortization expense
OEM automotive supply $ 319 $ 174 $ 87
Conversion vehicle parts 63 58 64
Discontinued operations 859 799 914
------------ ------------ ------------
$ 1,241 $ 1,031 $ 1,065
============ ============ ============
NOTE 13 - OPERATING SEGMENT INFORMATION (Continued)
The information below contains information regarding significant customer
concentrations by segment for sales and accounts receivable. The OEM automotive
supply has one significant customer.
Sales by segment for this major customer are as follows:
2001 2000 1999
---- ---- ----
OEM automotive supply $ 43,694 $ 73,162 $ 32,700
Conversion vehicle parts - - -
Discontinued operations - 5,423 4,283
Significant customer concentrations in accounts receivable for the Company's
major customer are as follows:
2001 2000 1999
---- ---- ----
OEM automotive supply $ 10,803 $ 8,071 $ 12,914
Conversion vehicle parts - - -
Discontinued operations - 25 389
NOTE 14 - EARNINGS (LOSS) PER SHARE
A reconciliation of the numerators and denominators of the basic earnings (loss)
per common share and earnings (loss) per common share assuming dilution
computations for the years ended September 30, 2001, October 1, 2000 and October
3, 1999 is presented below.
2001 2000 1999
---- ---- ----
Earnings (loss) per share, basic
Net income (loss) available to
common shareholders $ (3,177) $ (4,347) $ 522
========== ========== ==========
Weighted average common shares
outstanding 4,245 4,214 4,159
Earnings (loss) per share (EPS), basic $ (0.75) $ (1.03) $ 0.13
========= ========= ==========
Basic EPS - continuing operations $ 0.12 $ 0.99 $ 0.19
========== ========= ==========
Basic EPS - discontinued operations $ (0.87) $ (2.02) $ (0.06)
========= ========= ===========
NOTE 14 - EARNINGS (LOSS) PER SHARE (Continued)
2001 2000 1999
---- ---- ----
Earnings (loss) per share assuming dilution
Net income (loss) available to
common shareholders $ (3,177) $ (4,347) $ 522
============ ============ ============
Weighted average common shares
outstanding 4,245 4,214 4,159
Add: dilutive effects of assumed
conversions and exercises:
Stock options - - 289
Other - - 2
------------ ------------ ------------
Weighted average common and dilutive
potential common shares outstanding 4,245 4,214 4,450
Earnings (loss) per share (EPS) assuming dilution $ (0.75) $ (1.03) $ 0.12
=========== =========== ============
Dilutive EPS - continuing operations $ 0.12 $ 0.99 $ 0.18
============ =========== ============
Dilutive EPS - discontinued operations $ (0.87) $ (2.02) $ (0.06)
============ ============ =============
Stock options were not considered in computing loss per common share for 2001 or
2000 because they were antidilutive. In addition, incentive stock options on
211,500 shares of common stock were not considered in computing earnings per
share for 1999 because they were antidilutive.
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company paid administrative and engineering support in the amounts of $2,838
and $3,230 for 2001 and 2000, respectively to the Company's partner in Tecstar.
NOTE 16 - MANAGEMENT'S INTENT REGARDING FUTURE OPERATIONS
At September 30, 2001 and for the year then ended, the Company has an
accumulated deficit and a significant current year loss. Primary factors for the
loss include the continued decline in demand in the conversion vehicles segment
and an extended plant shutdown at one of the OEM automotive supply segment
locations.
NOTE 16 - MANAGEMENT'S INTENT REGARDING FUTURE OPERATIONS (Continued)
Future operations of the Company are intended to continue. The Company has
amended the terms of its existing debt agreement with its primary lender that
extends the maturity date on certain notes payable and gives the Company
additional liquidity (see Note 4). Production began in a new OEM automotive
supply plant in November 2000. The OEM automotive supply plant that experienced
the extended shutdown for a model changeover started up production again in
March 2001. Additionally, the Company received three new OEM automotive supply
contracts during 2001.
In 2001, the Company reassessed its long-term strategy and exited the
non-profitable conversion vehicle business. Further, the Company significantly
reduced its long-term debt and eliminated excess overhead as a result of the
sale of the bus and mobility business. The Company will focus its efforts on the
OEM automotive supply business.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - EFFECTS ON FINANCIAL STATEMENT
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or about January 7, 2002.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or about January 7, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or about January 7, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or about January 7, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of the report:
Financial Statements (as of September 30, 2001 and October 1, 2000
and for the fiscal periods ended September 30, 2001, October 1,
2000, and October 3, 1999):
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(b) Reports on Form 8-K The Company filed a report on Form 8-K on
August 31, 2001 to report the disposition of its bus and mobility
businesses.
(c) The exhibits filed herewith or incorporated by reference herein
are set forth on the Exhibit Index beginning on page E-1.
(d) The following financial statement schedule is filed as part of
this report:
(i) Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and have been omitted.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Starcraft Corporation and Subsidiaries
Goshen, Indiana
We have audited the consolidated financial statements of Starcraft Corporation
and Subsidiaries as of September 30, 2001 and October 1, 2000 and for the years
ended September 30, 2001, October 1, 2000 and October 3, 1999 and have issued
our report thereon dated November 21, 2001. Our audits also included the
information for the years ended September 30, 2001, October 1, 2000 and October
3, 1999 in the financial statement schedule listed in Item 14 of this Annual
Report. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information as of September 30,
2001 and October 1, 2000 and for the years ended September 30, 2001, October 1,
2000 and October 3, 1999 set forth therein.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Elkhart, Indiana
November 21, 2001
Schedule II
Valuation and Qualifying Accounts and Reserves
(Dollars in Thousands)
Balance at Deductions from/ Balance at
Beginning of Charged to Additions to Close of
Period Operations Reserves (a) Period
------ ---------- ------------ ------
Allowance for doubtful accounts - deducted from accounts receivable, trade in the consolidated balance sheets:
52 weeks ended September 30, 2001 255 - (85) 170
52 weeks ended October 1, 2000 40 276 (61) 255
53 weeks ended October 3, 1999 40 - - 40
(a) Write-off of bad debts, less recoveries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report to be signed on
behalf of the undersigned, thereto duly authorized.
STARCRAFT CORPORATION
DATE: December 21, 2001 By:/s/ Kelly L. Rose
---------------------------------------
Kelly L. Rose,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 23rd day of January, 2001.
1) Principal Executive Officer:
By: /s/ Kelly L. Rose Chairman, Chief Executive Officer
-----------------------------------
Kelly L. Rose
2) Principal Financial/Accounting Officer:
By: /s/ Richard J. Mullin President, Secretary,
----------------------------------- Chief Financial Officer
Richard J. Mullin
3) The Board of Directors:
By: /s/ Kelly L. Rose Director
-----------------------------------
Kelly L. Rose
By: /s/ David J. Matteson Director
-----------------------------------
David J. Matteson
By: /s/ Allen H. Neuharth Director
-----------------------------------
Allen H. Neuharth
By: /s/ G. Raymond Stults Director
-----------------------------------
G. Raymond Stults
By: /s/ Michael H. Schoeffler Director
-----------------------------------
Michael H. Schoeffler
PART IV
EXHIBIT INDEX
Reference to Sequential
Regulation S-K Page
Exhibit Number Document Number
3.1 Registrant's Articles of Incorporation, as
amended. Incorporated by reference to Exhibit
3.1 to the Registrant's Form 10-K for the
year ending October 1, 1995. *
3.2 Registrant's Code of By-Laws, as amended.
Incorporated by reference to Exhibit 3.2 to
the Registrant's Form 10-K for the year
ending October 1, 2000. *
4.1 Article 6 - "Terms of Shares" and Article 9 -
"Provisions for Certain Business
Combinations" of the Registrant's Articles of
Incorporation, as amended. Incorporated by
reference to Exhibit 3.1 to the Registrant's
Form 10-K for the year ending October 1,
1995. *
4.2 Article III - "Shareholder Meetings", Article
VI - "Certificates for Shares" and Article
VII - "Corporate Books and Records - Section
3" of the Registrant's Code of By-Laws, as
amended. Incorporated by reference to Exhibit
3.2 to the Registrant's Form 10-K for the
fiscal year ending September 29, 1996. *
4.3 Amended and Restated Credit Agreement between
the Registrant and Bank One Indianapolis,
N.A., dated November 30, 1994. Incorporated
by reference to Exhibit 4.6 of the
Registrant's Form 10-K for the fiscal year
ending October 2, 1994. *
4.4 First Amendment to Amended and Restated
Credit Agreement between the Registrant and
Bank One, Indianapolis, N.A. dated March 7,
1995. Incorporated by reference to Exhibit
10(2) to the Registrant's Form 10-Q for the
quarter ending April 2, 1995. *
4.5 Second Amendment to Amended and Restated
Credit Agreement dated April 6, 1996, among
Starcraft Corporation, Starcraft Automotive
Group, Inc. Imperial Automobile Group, Inc.
and Bank One, Indianapolis, N.A. Incorporated
by reference to the Registrant's Form 10-Q
for the Quarter Ended March 31, 1997. *
4.6 Third Amendment to Amended and Restated
Credit Agreement, effective January 31, 1997,
among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automobile
Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to the Registrant's
Form 10-Q for the Quarter Ended March 31,
1997. *
4.7 Fourth Amendment to Amended and Restated
Credit Agreement, effective June 29, 1997,
among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automobile
Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to Exhibit 4.7 of
the Registrant's Form 10-K for the fiscal
year ending September 28, 1997. *
4.8 Fifth Amendment to Amended and Restated
Credit Agreement, effective December 31,
1997, among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automobile
Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to Exhibit 4.8 of
the Registrant's Form 10-K for the fiscal
year ending September 28, 1997. *
4.9 Seventh Amendment to Amended and Restated
Credit Agreement, dated as of February 27,
1998, among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automotive
Group, Inc. and Bank One, Indiana, N.A.
Incorporated by reference to Exhibit 10.1 of
the Registrant's Form 10-Q for the quarter
ending March 29, 1998. *
4.10 Eighth Amendment to Amended and Restated
Credit Agreement, effective November 23,
1998, among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automobile
Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to Exhibit 4.10 of
the Registrant's Form 10-K for the fiscal
year ending September 27, 1998. *
4.11 Rights Agreement, dated as of August 12,
1997, between Registrant and Harris Trust and
Savings Bank, as Rights Agent. Incorporated
by reference to the Registrant's 8-A filed
September 9, 1997. *
4.12 Promissory Note from Starcraft Automotive
Group, Inc. to Bank One, Indiana, N.A. dated
November 23, 1998. Incorporated by reference
to Exhibit 4.12 of the Registrant's Form 10-K
for the fiscal year ending September 27,
1998. *
4.13 Guaranty of Kelly L. Rose to the obligations
of Starcraft Automotive Group, Inc. to Bank
One, Indiana, N.A. dated November 23, 1998.
Incorporated by reference to Exhibit 4.13 of
the Registrant's Form 10-K for the fiscal
year ending September 27, 1998. *
4.14 Guaranty of Gerald R. Stults to the
obligations of Starcraft Automotive Group,
Inc. to Bank One, Indiana, N.A. dated
November 23, 1998. Incorporated by reference
to Exhibit 4.14 of the Registrant's Form 10-K
for the fiscal year ending September 27,
1998. *
4.15(a) Loan and Security Agreement by and among
Starcraft Automotive Group, Inc., National
Mobility Corporation, Starcraft Corporation,
Imperial Automotive Group, Inc. and Foothill
Capital Corporation, dated October 30, 1998.
Incorporated by reference to Exhibit 4.15 of
the Registrant's Form 10-K for the fiscal
year ending September 27, 1998. *
4.15(b) First Amendment to Loan Agreement by and
among Starcraft Automotive Group, Inc.,
National Mobility Corporation, Starcraft
Corporation, Imperial Automotive Group, Inc.
and Foothill Capital Corporation, dated
September 28, 1999. [ ]
4.16 Secured Promissory Note from Starcraft
Automotive Group, Inc. and National Mobility
Corporation to Foothill Capital Corporation
dated October 30, 1998. Incorporated by
reference to Exhibit 4.16 of the Registrant's
Form 10-K for the fiscal year ending
September 27, 1998. *
4.17 Amended and Restated Loan and Security
Agreement by and between Tecstar, LLC, as
Borrower and Foothill Capital Corporation, as
Lender dated as of December 12, 2000.
Incorporated by reference to Exhibit 4.17 to
the Registrant's Form 10-K for the year
ending October 1, 2000. *
4.18 Subordination Agreement between Kelly L. Rose
and G. Ray Stults and Foothill Capital
Corporation dated as of December 12, 2000.
Incorporated by reference to Exhibit 4.18 to
the Registrant's Form 10-K for the year
ending October 1, 2000. *
4.19 Waiver, Consent and Second Amendment to Loan
Agreement among Starcraft Automotive Group,
Inc., National Mobility Corporation,
Starcraft Corporation and Imperial Automotive
Group, Inc. and Foothill Capital Corporation
entered into as of December 12, 2000.
Incorporated by reference to Exhibit 4.19 to
the Registrant's Form 10-K for the year
ending October 1, 2000. *
4.20 First Amendment to Amended and Restated Loan
Agreement, dated March 30, 2001, between
Tecstar, LLC and Foothill Capital
Corporation. Incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q
for the quarter ending April 1, 2001. *
4.21 Third Amendment to Loan Agreement, dated
March 30, 2001, between Starcraft Automotive
Group, Inc., National Mobility Corporation,
Starcraft Corporation and Imperial Automotive
Group, Inc. and Foothill Capital Corporation.
Incorporated by reference to Exhibit 10.2 to
the Registrant's Form 10-Q for the quarter
ending April 1, 2001. *
4.22 Asset Purchase and Sale Agreement, dated May
7, 2001, between Starcraft Automotive Group,
Inc. and Centurion Vehicles, Inc.
Incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K dated May 25, 2001. *
4.23 Asset Purchase and Sale Agreement, dated
August 21, 2001, between Starcraft Automotive
Group, Inc. and National Mobility Corporation
and Forest River, Inc. Incorporated by
reference to Exhibit 2.1 to the Registrant's
Form 8-K dated August 31, 2001. *
4.24 First Amendment to Asset Purchase and Sale
Agreement, dated August 31, 2001, between
Starcraft Automotive Group, Inc. and National
Mobility Corporation and Forest River, Inc.
Incorporated by reference to Exhibit 2.2 to
the Registrant's Form 8-K dated August 31,
2001. *
4.25 Consent and Fourth Amendment to Loan
Agreement, dated August 31, 2001, between
Starcraft Automotive Group, Inc., National
Mobility Corporation, Starcraft Corporation
and Imperial Automotive Group, Inc. and
Foothill Capital Corporation. [ ]
4.26 Waiver and Fifth Amendment to Loan Agreement,
dated December 5, 2001, between Starcraft
Automotive Group, Inc., National Mobility
Corporation, Starcraft Corporation and
Imperial Automotive Group, Inc. and Foothill
Capital Corporation. [ ]
4.27 Waiver and Second Amendment to Amended and
Restated Loan Agreement, dated December 5,
2001, between Tecstar, LLC and Foothill
Capital Corporation. [ ]
10.1(a) The Starcraft Automotive Corporation Stock
Incentive Plan. **
10.1(b) The Starcraft Corporation 1997 Stock
Incentive Plan. Incorporated by reference to
Exhibit 10.1(b) to the Registrant's From 10-K
for the fiscal year ending September 29,
1996. *
10.2 Form of Tax indemnification agreement among
the Registrant, Mr. Kash, Mr. Rose, Mr.
Newberry and Mr. Hardin, dated as of July 21,
1993. Incorporated by reference to Exhibit
10.7 of the Registrant's registration
statement on Form S-1, Reg. No. 33- 63760. *
10.3(a) Employment Agreement with Kelly L. Rose dated
December 12, 1996. Incorporated by reference
to Exhibit 10.3(b) to the Registrant's From
10-K for the fiscal year ending September 29,
1996. *
10.3(b) Form of First Addendum to Employment
Agreement with Kelly L. Rose, December 31,
1997. Incorporated by reference to Exhibit
10.1 of the Registrant's Form 10-Q for the
fiscal year ending March 29, 1998. *
10.3(c) Second Addendum to Employment Agreement with
Kelly L. Rose, effective December 15, 1997.
Incorporated by reference to Exhibit 10.3(d)
of the Registrant's Form 10-K for the fiscal
year ending September 27, 1998. *
10.3(d) Consulting Agreement with Allen H. Neuharth
dated September 15, 1993. Incorporated by
reference to Exhibit 10.3(k) of the
Registrant's Form 10-K for the fiscal year
ending October 2, 1994. *
10.3(e) Employment Agreement between the Registrant
and Michael H. Schoeffler dated December 12,
1996. Incorporated by reference to Exhibit
10.3(e) to the Registrant's Form 10-K for the
fiscal year ending September 29, 1996. *
10.3(f) Employment Agreement between the Registrant
and Richard J. Mullin effective May 1, 2000.
Incorporated by reference to Exhibit 10.3(f)
to the Registrant's Form 10-K for the year
ending October 1, 2000. *
10.4 Intercreditor Agreement between Ford Motor
Credit Company and Bank One, Indianapolis,
N.A. dated July 17, 1992. Incorporated by
reference to Exhibit 10.20 of the
Registrant's Form S-1. **
10.5 Truck Consignment Agreement between the
Registrant and Chrysler Corporation dated
August 29, 1991. Incorporated by reference to
Exhibit 10.21 of the Registrant's Form S-1. **
10.6 License Agreement by and between the
Registrant and AlliedSignal, Inc. dated
February 18, 1993. Incorporated by reference
to Exhibit 10.22 of the Registrant's Form
S-1. **
10.7 Agent Agreement by and between the
Registrant, Mitsui & Co. (U.S.A.), Inc. and
Mitsui & Co., Ltd. dated March 1, 1993.
Incorporated by reference to Exhibit 10.23 of
the Registrant's Form S-1. **
10.8 License Agreement by and between the
Registrant and Starcraft RV, Inc. dated
September 12, 1991. Incorporated by reference
to Exhibit 10.24 of the Registrant's Form
S-1. **
10.9 License Agreement by and between the
Registrant and Starcraft Recreational
Products, Ltd. dated January 18, 1991.
Incorporated by reference to Exhibit 10.25 of
the Registrant's Form S-1. **
10.10(a) Directors' Share Plan, restated effective
October 1, 1995. Incorporated by reference to
Exhibit 10.16(a) of the Registrant's Form
10-K for the year ending October 1, 1995. *
10.10(b) Directors' Compensation Deferral Plan
effective October 1, 1995. Incorporated by
reference to Exhibit 10.16(b) of the
Registrant's Form 10-K for the year ending
October 1, 1995. *
10.11 Intercreditor Agreement between General
Motors Acceptance Corporation and Bank One
Indianapolis, N.A. dated July 15, 1994.
Incorporated by reference to Exhibit 10.24 of
the Registrant's Form 10-K for the fiscal
year ending October 2, 1994. *
10.12 Agreement between Chrysler Corporation and
Starcraft Automotive Group, Inc. dated July
1, 1995. Incorporated by reference to Exhibit
10.29 of the Registrant's Form 10-K for the
year ending October 1, 1995. *
10.13 Pool Company Wholesale Finance Plan and
Security Agreement between Chrysler Credit
Corporation and Starcraft Automotive Group,
Inc. dated July 1, 1995. Incorporated by
reference to Exhibit 10.30 of the
Registrant's Form 10-K for the year ending
October 1, 1995. *
10.14 Warrant to Purchase 200,000 Shares of Common
Stock of Starcraft Corporation, issued to
Kelly L. Rose, dated November 23, 1998.
Incorporated by reference to Exhibit 10.33 of
the Registrant's Form 10-K for the fiscal
year ending September 27, 1998. *
10.15 Warrant to Purchase 200,000 Shares of Common
Stock of Starcraft Corporation, issued to G.
Ray Stults, dated November 23, 1998.
Incorporated by reference to Exhibit 10.34 of
the Registrant's Form 10-K for the fiscal
year ending September 27, 1998. *
10.16 Stock Options to Purchase Shares of Common
Stock of Starcraft Corporation of Kelly L.
Rose dated as of December 12, 2000.
Incorporated by reference to Exhibit 10.16 to
the Registrant's Form 10-K for the year
ending October 1, 2000. *
10.17 Stock Options to Purchase Shares of Common
Stock of Starcraft Corporation of G. Raymond
Stults dated as of December 12, 2000.
Incorporated by reference to Exhibit 10.17 to
the Registrant's Form 10-K for the year
ending October 1, 2000. *
10.18(a) Reimbursement Agreement between Starcraft
Corporation, National Mobility Corporation,
Imperial Automotive Group, Inc. and Starcraft
Automotive Group, Inc. and Kelly L. Rose and
G. Ray Stults dated as of December 12, 2000.
Incorporated by reference to Exhibit 10.18(a)
to the Registrant's Form 10-K for the year
ending October 1, 2000. *
10.18(b) Security Agreement between Starcraft
Corporation and Starcraft Automotive Group,
Inc. and Kelly L. Rose and G. Ray Stults
entered into as of December 12, 2000.
Incorporated by reference to Exhibit 10.18(b)
to the Registrant's Form 10-K for the year
ending October 1, 2000. *
10.18(c) Real Property Mortgage (LaGrange County,
Indiana)(Elkhart County, Indiana) made and
executed by Starcraft Corporation, f/k/a
Rokane Investment Group, Inc. in favor of
Kelly L. Rose and G. Ray Stults made as of
December 12, 2000. Incorporated by reference
to Exhibit 10.18(c) to the Registrant's Form
10-K for the year ending October 1, 2000. *
10.19 Pool Company Wholesale Finance Plan
Application for Wholesale Financing and
Security Agreement to Ford Motor Credit
Company by Starcraft Automotive Group, Inc.
dated as of January 27, 1995. Incorporated by
reference to Exhibit 10.19 to the
Registrant's Form 10-K for the year ending
October 1, 2000. *
10.20 Inventory Loan and Security Agreement by and
between General Motors Acceptance Corporation
and Starcraft Automotive Group, Inc. dated as
of February 1, 1996. Incorporated by
reference to Exhibit 10.20 to the
Registrant's Form 10-K for the year ending
October 1, 2000. *
10.21 Special Vehicle Manufacturer Converters
Agreement by and between General Motors
Corporation and Starcraft Automotive Group,
Inc. effective July 1, 1999. Incorporated by
reference to Exhibit 10.21 to the
Registrant's Form 10-K for the year ending
October 1, 2000. *
10.22 Ford Motor Company, Ford Authorized Agreement
for the Qualified Vehicle Modifiers (QVM)
Program between Starcraft Automotive Group,
Inc. and Ford Motor Company dated as of
December 15, 1999. Incorporated by reference
to Exhibit 10.22 to the Registrant's Form
10-K for the year ending October 1, 2000. *
21 Subsidiaries of the Registrant. [ ]
23.1 Consent of Crowe, Chizek and Company LLP. [ ]
- ---------------
* Incorporated by reference as indicated in the description.
** Incorporated by reference to the exhibit, bearing the corresponding
exhibit number to the Registrant's registration statement on Form S-1,
Reg. No. 33-63760, unless another exhibit number is listed in the above
description.