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 29, 2002.
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: (574) 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 19, 2002, was $22,366,886.
The number of shares of the Registrant's Common stock, without par value,
outstanding as of December 19, 2002, was 4,484,059 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 4, 2003, 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 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. Controls and Procedures
Item 15. 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 second-stage manufacturer of motor vehicles (primarily pick-up trucks and
sport utility vehicles). The business is comprised of two segments: An original
equipment manufacturer ("OEM automotive supply") and an after-market automotive
parts and products ("automotive parts and products"). The OEM automotive supply
segment provides and installs upfit appearance items on vehicles provided by and
returned to Original Equipment Manufacturers ("OEMs"). Automotive parts and
products are sold to wholesale and retail customers to customize their vehicles.
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 provide final exterior assembly on sport
utility vehicles and pickup trucks directly to the OEM automobile manufacturers.
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 Nasdaq Small Cap Market under the ticker symbol "STCR."
SEGMENTS
The following table sets forth for the three years ended September 29, 2002, the
net sales and operating income for the Company's operating segments, in
thousands,
Net Sales
------------------------------------------------------
2002 2001 2000
---- ---- ----
OEM automotive supply $ 102,058 $ 43,694 $ 73,162
Automotive parts and products 2,626 5,240 2,153
----------- ------------ --------
Total $ 104,684 $ 48,934 $ 75,315
============ ========== ========
Operating Segment Income
-----------------------------------------------------
2002 2001 2000
---- ---- ----
OEM automotive supply $ 4,747 $ 347 $ 5,467
Automotive parts and products 133 981 44
------------ ---------- --------
Total $ 4,880 $ 1,328 $ 5,511
============ ========== =========
The following provides a reconciliation of segment information to consolidated
information.
2002 2001 2000
---- ---- ----
Operating segment income $ 4,880 $ 1,328 $ 5,511
Nonoperating expense (219) (254) (782)
Income tax expense (388) (26) (379)
Unallocated corporate expenses (1,310) (546) (169)
------------ ------------- --------
Income from
continuing operations $ 2,963 $ 502 $ 4,181
============ ========== ========
OEM Automotive Supply
In 1998, the Company started a new operation with a partner to supply conversion
vehicle type products directly to OEM automotive customers as a Tier 1
automotive supplier. In 2002, the Company invested in a similar operation in
Oshawa, Ontario, Canada with the same partner. The Company currently owns 50% of
these enterprises, which are collectively referred to as "Tecstar". All of
Tecstar's OEM automotive supply sales in 2002, 2001 and 2000 were to General
Motors Corporation ("GM") and its subsidiaries.
Tecstar's strategy is to provide OEM's with faster time to market, less costly,
high quality exterior appearance packages. At September 29, 2002, Tecstar
operated three manufacturing facilities in close proximity to the OEM vehicle
assembly plants. A fourth plant located in Oshawa, Ontario, Canada is scheduled
to begin operation during the first fiscal quarter of 2003. Each facility is QS
9001 registered. Tecstar also operates a parts distribution operation supplying
parts for the H2 Hummer to OEM dealers.
Tecstar 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. After
completing the final appearance assembly work, 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 through its dealerships. Tecstar engineers and
validates the products to OEM standards. Programs range from two to five years
and are backed by contractual agreements with the OEM. Tecstar provides a
limited warranty of its products to the OEM, which is substantially the same as
the OEM warranty provided to the OEM's retail customers.
The major domestic market for Tecstar's products is 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. Tecstar'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 and continuing into the second quarter of
fiscal 2001, one of the Company's manufacturing facilities was substantially
shut down as a result of a GM vehicle model changeover. This adversely affected
the Company's 2000 and 2001 financial results. 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 29, 2002, Tecstar's backlog of firm orders was $3.6 million
compared with a backlog of $6.2 million at September 30, 2001. The decrease in
backlog is primarily due to a higher than normal backlog in 2001 attributed to
the extended shutdown of the Texas facility in 2001. Tecstar utilizes an
independent manufacturer representative to market and sell its services.
Automotive parts and products
The Company purchases for resale and manufactures conversion vehicle parts for a
variety of cars, conversion vans, pick-up trucks and sport utility vehicles
(SUVs). The Company also purchases and resells seats, carpeting, electronics,
ground effects and other items that enhance passenger comfort and safety.
Automotive parts and products are sold directly to vehicle owners and through
OEM automobile dealers and automotive repair shops. The Company sells these
products primarily in North America, but also exports to Northern Europe and
Asia.
Sales by the automotive parts and products segment declined in 2002, primarily
due to the sale of the Company's conversion vehicle business in 2001 and an
overall decline in the domestic conversion vehicle industry over the last
several years. A primary factor for this decline is the increased popularity of
SUVs and pickup trucks. However, over one million conversion vehicles have been
manufactured over the last several years and a substantial number are still in
use. During the life of the conversion vehicle, many conversion components,
including exterior ground effects, wheels, seating, electronics, carpet and wood
trim are replaced. Based on this information, the Company believes an
opportunity exists to grow this segment of its automotive parts and products
business. However, because of the overall decline of the conversion van market,
and to offset any potential decline in sales of conversion vehicle parts, the
Company is broadening its product lines offered to customers. One of the
segments offering significant opportunity is in the sale of vehicle parts to the
youth market. This market is the fastest growing segment of the domestic parts
sales, accounting for over $18 billion in 2001. The Company believes its Midwest
location and its strong brand name will provide a platform for growth. However,
high gasoline prices, a slowing economy, and/or higher interest rates may
negatively impact the growth of this business segment.
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 business 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 significant competition
in this market. Sales may be negatively impacted by the Mexican economy, a
disruption in the supply of kits and the availability of OEM chassis.
During fiscal 2002, the Company also developed and started production of custom
built, high quality cargo trailers. The Company's target markets are to affluent
hobbyists that own vintage cars and motorcycle owners wishing to transport their
vehicles. Sales to trade show vendors and concessionaires are also a potential
market segment. Growth of this business unit has not met expectations and
management continues to evaluate the further development of this business.
At September 29, 2002, the Company had a backlog of $158 compared with a backlog
of $180 at September 30, 2001. The backlog declined from prior year levels,
primarily due to the sale of the conversion van division in 2001 and a decline
in international orders. The Company considers such backlog orders to be
reasonably firm. All of the Company's products are subject to seasonal sales
influences and sales tend to be stronger during March through October.
In conjunction with the sale of the conversion vehicle business, the Company may
be obligated to repurchase certain obsolete 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 29, 2002. However, there is no assurance that
these reserves will be sufficient to offset actual obligations assumed under
these agreements.
Competition in the automotive parts and products segment is very strong. The
Company competes with conversion vehicle manufacturers and other automotive
parts suppliers. There is no assurance that the Company will be able to retain
its current customers or add new customers in the future.
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 use of the "Starcraft" brand to owners of the
Predecessor's RV business, as well as the purchasers of its conversion and bus
and mobility businesses. While it has some control over the quality of its
licensees' products, it does not control all aspects of their businesses. 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. These royalties may be offset by obsolete
inventory, that could be returned to the Company, which was given to the
purchaser at the time of the sale.
MANUFACTURING
OEM automotive supplier segment manufacturing facilities have been established
in Louisiana, Texas and New Jersey in the United States and in Oshawa, Ontario,
Canada. All facilities are located near GM assembly plants. Tecstar also has a
engineering and a parts distribution operation outside of Detroit, Michigan.
Most automotive parts and products are purchased for resale. Certain wood parts
are manufactured at the Company's Goshen, Indiana facility.
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. One of Tecstar's
primary plastics vendors has recently experienced some financial difficulties.
To date, no supply problems have been encountered. However, to mitigate any
potential supply disruptions, Tecstar has established relationships with
additional suppliers. The primary components for automotive parts and products
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. However, from time to time the Company may experience 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 performs 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 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 29, 2002, the Company employed 232 people. Of these, 167 were
production line associates and 65 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 29,
2002:
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, Automotive Parts
and Products Segment
Shreveport, Louisiana 38,000 s.f. Leased Manufacturing and Assembly, OEM
Automotive Supply Segment
Grand Prairie, Texas 100,000 s.f. Leased OEM Automotive Supply Segment;
Vacant, Moved to a Larger
Facility in Haslett, Texas
Haslett, Texas 200,000 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
Warren, MI 25,000 s.f. Leased Parts Warehouse and Offices,
OEM Automotive Supply Segment
Oshawa, Ont., Canada 79,000 s.f. Leased Manufacturing and Assembly, OEM
Automotive Supply Segment
The Shreveport lease has a term parallel to the length of the vehicle contracts
for the plant. The New Jersey facility is leased on a month-to-month basis
pending resolution of a local zoning issue. The Michigan leases have a five-year
term. The Haslett lease has a ten-year term, with a buyout option after five
years. The Grand Prairie facility is currently vacant; the Company relocated the
Grand Prairie operation to a larger facility in Haslett, Texas to accommodate
increased demand. The Oshawa lease has a ten-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 Nasdaq Stock Market, Inc. ("Nasdaq"). As of
December 19, 2002, there were 61 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 met the minimum tangible asset or profitability levels for continued
inclusion in the Small Cap Market. On September 18, 2002, the Company's stock
was relisted on Nasdaq Small Cap Market as it once again met the listing
requirements.
The following table sets forth the high and low closing prices per share of
Common Stock for the quarters ended as quoted on the Nasdaq.
Quarter Ended
High Low
December 31, 2000 $3.750 $1.750
April 1, 2001 2.500 1.125
July 31, 2001 2.000 1.030
September 30, 2001 3.000 1.120
December 30, 2001 4.200 2.250
March 31, 2002 5.100 3.800
June 30, 2002 6.200 3.650
September 29, 2002 7.850 4.850
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 of common stock. 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. 29, Sept. 30, Oct. 1, Oct. 3, Sept. 27, 1998
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net Sales:
Domestic $ 104,422 $ 48,647 $ 75,176 $ 36,102 $ 3,166
Export 262 287 139 281 277
Total Net Sales 104,684 48,934 75,315 36,383 3,443
Cost of Goods Sold 79,416 38,184 56,719 28,105 3,216
Gross Profit 25,268 10,750 18,596 8,278 227
Operating Expenses 15,515 9,898 8,336 4,444 1,030
Compensation Expense From Warrant
and Option Redemption 2,096 -- -- -- --
Operating Income (Loss) 7,657 852 10,260 3,834 (803)
Interest Expense (476) (547) (864) (719) (498)
Other Income, Net 257 293 82 115 100
Income (Loss) Before
Minority Interest 7,438 598 9,478 3,230 (1,201)
and Income Taxes
Minority Interest 4,087 (70) (4,918) (2,448) --
Income Tax Expense (Credit) 388 26 379 (21) (44)
Income (Loss) from
Continuing Operations 2,963 502 4,181 803 (1,157)
Loss from Discontinued Operations --- (3,679) (8,528) (281) (5,602)
Net Income (Loss) $ 2,963 $ (3,177) $ (4,347) $ 522 $ (6,759)
Weighted Average Common
Shares Outstanding 4,327 4,245 4,214 4,159 4,134
Earnings (Loss) Per Share $ .68 $ (.75) $ (1.03) $ .13 $ (1.63)
Earnings (Loss) Per Share .58 (.75) (1.03) .12 (1.63)
Assuming Dilution
Balance Sheet Data
- -----------------------------------------------------------------------------------------------------------------
Working Capital $ 9,066 $ 2,040 $ 2,165 $ 10,192 $ 5,402
Total Assets 39,092 22,010 34,994 43,781 29,015
Long-term Debt 12,704 8,092 9,957 13,506 10,777
Shareholders' Equity (Deficit) 331 (2,703) 77 4,186 3,536
Book Value per Share .08 (.64) .02 1.00 .86
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.
2002 VERSUS 2001
(Dollars in Thousands) 2001 to
2002
2002 2001 Change
--------------------------------------------------------------------------------
Net sales $ 104,684 100.0% $ 48,934 100.0% 113.9%
Cost of goods sold 79,416 75.9% 38,184 78.0% 108.0%
Gross profit 25,268 24.1% 10,750 22.0% 135.1%
Selling and promotion expenses 2,014 1.9% 1,209 2.5% 66.6%
General and administrative expenses 13,501 12.9% 8,689 17.8% 55.4%
Compensation expense from redemption
of warrants and options 2,096 2.0% -- --% --%
Operating income 7,657 7.3% 852 1.7% 798.7%
Interest expense (476) (.4%) (547) (1.1%) (13.0%)
Other income 257 .2% 293 .6% (12.3%)
Income before income taxes
and minority interest 7,438 7.1% 598 1.2% 1,143.8%
Minority interest 4,087 3.9% (70) (.2%) --%
Income tax expense 388 0.4% 26 -- --%
Income from continuing operations $ 2,963 2.8% $ 502 1.0% 490.2%
Continuing Operations:
Net sales increased $55.8 million and 113.9% to $104.7 million in 2002.
The OEM automotive supply segment sales increased $58.4 million in 2002,
primarily due to an increase in demand for its products from its OEM customer
and operation of all of its facilities in 2002. In fiscal 2001, revenues were
adversely affected due to an extended shutdown of the Company's Texas facility
for the first half of fiscal 2001. Conversion vehicle parts sales declined $2.6
million to $2.6 million in 2002, primarily due to the sale of the conversion van
business and lower international sales.
The OEM automotive supply sales generated $14.5 million more gross profit in
2002 compared to 2001. Gross profit from automotive parts and products increased
slightly in 2002 compared to 2001.
In 2002, the Company reached agreement to redeem and cancel 360,000 warrants and
500,000 options to purchase shares of common stock, previously issued to two
individuals, both of whom are directors and one of whom is an officer of the
Company, as incentive for their partial guarantee of the Company's debt. The
total cost of the redemption was $2.5 million. Of this amount, the Company
incurred a one-time expense of $2.1 million in 2002. Previously, in 2001, the
Company recorded $0.4 million of compensation expense for stock options issued
in December 2000.
Selling expenses increased $0.8 million and general and administrative expenses
increased $4.8 million primarily due to higher product demand and expansion of
the business in Texas and Canada.
Minority interest results from the Company owning only 50% of the OEM automotive
supply business. Tax expense for 2002 and 2001 is comprised of state income
taxes. The Company did not record any federal income tax expense in 2002 and
2001 due to net operating loss tax carry forwards generated from losses in prior
years and the reduction in the valuation allowance for deferred tax assets.
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 were discontinued
in 2001 and reported losses of $3.7 million for 2001. The conversion vehicle
segment was sold in May 2001 and the bus and mobility businesses were sold in
August 2001. The loss for 2001 includes 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 from
the sale of the conversion vehicle segment.
2002 VERSUS 2001
(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 .6% 82 .1% 257.3%
Income before income taxes
and minority interest 598 1.2% 9,478 12.6% (93.7%)
Minority interest (70) (.2%) (4,918) (6.5%) (98.6%)
Income tax expense 26 -- 379 .5% (93.1%)
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 extended shutdown of 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 and general and administrative expenses
increased $1.3 million primarily to support the additional OEM automotive supply
plant.
Interest expense decreased $0.3 million 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
net operating loss tax carry forwards generated from losses in prior years and
the reduction in the valuation allowance for deferred tax assets.
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 were discontinued
in 2001 and 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 includes a
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.
SEASONALITY AND TRENDS
The Company's OEM automotive supply business sales and profits are dependent on
the automotive markets, primarily located in North America. The business may be
influenced by a number of factors including OEM programs affecting price and
supply, interest rates, gasoline prices, atypical weather for any sales region
OEM plant shutdowns and model year changeovers. The OEM automotive supply
segment is dependent upon long-term contracts.
In 1997 the Company began a plan to diversify 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 continue to focus on its OEM automotive supply business
and automotive parts and products businesses and expects these segments to
continue to be profitable in 2003 and beyond.
REDEMPTION OF WARRANTS AND OPTIONS
On September 25, 2002, the Company reached an agreement to redeem and cancel
360,000 outstanding warrants and 500,000 stock options previously issued to two
individuals, both of whom are directors and one of whom is an officer of the
Company, as incentive for their partial guarantee of certain of the Company's
debt. The total cost of the redemption was $2.5 million. Of this amount, the
Company recorded $2.1 million of compensation expense in fiscal 2002; in fiscal
2001, the Company had recorded $0.4 million of compensation expense for stock
options issued in December 2000.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities consumed $0.7 million in cash in 2002 compared to consuming
$6.7 million in cash in 2001. Cash was used as receivables increased $11.0
million in 2002 primarily due to the increase in sales in the OEM automotive
supply segment.
STARCRAFT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
The Company invested $2.9 million in property and equipment during the year
primarily attributed to growth of the OEM automotive supply business,
particularly its expansion in Texas and start-up of operations in Canada.
In December 2000, the Company and its subsidiary, Tecstar, each had credit
agreements with their primary lending institution in a combined amount of $22
million, which consisted of term loans and revolving credit facilities. A
portion of the Company's bank debt was guaranteed by two individuals, both of
whom are currently directors and one of whom is an officer of the Company. In
September 2001, in conjunction with the sale of the Company's bus and mobility
business, the term loans were repaid. In addition, the Company agreed to repay
any outstanding revolving advances credit advances from the lender by December
31, 2001. On December 5, 2001, the lending institution granted an extension of
time to June 30, 2002 for the Company and Tecstar to find alternative financing.
At September 30, 2001, the Company and Tecstar had $814 and $8,092,
respectively, of outstanding borrowings under their respective credit
facilities.
In February 2002, Tecstar entered into a $10 million revolving credit agreement
with a new lending institution, which matures on April 1, 2004. In May 2002, the
facility was amended to increase the size of the facility to accommodate growth
in Tecstar's business. Advances under the amended agreement are limited to a
specified percentage of eligible receivables and inventories, subject to a
maximum of $15 million. At September 29, 2002, Tecstar had $11.3 million of
outstanding advances under its revolving facility. The advances bear interest
subject to a margin table with ranges of 1/2% below the prime rate to 1/2% above
the prime rate, dependent upon Tecstar's tangible net worth. The borrowings are
collateralized by substantially all of Tecstar's assets. This facility is
subject to various loan covenants with which Tecstar is in compliance as of
September 29, 2002.
In June 2002, the Company entered into a $2 million revolving credit agreement,
which matures on April 1, 2004, with the same lending institution that provided
Tecstar's new credit facility. At September 29, 2002, the Company had $1.4
million of outstanding borrowings under its revolving credit facility. Advances
under the revolving credit agreement bear interest at a rate of 1% over the
prime rate and are collateralized by substantially all of the Company's assets.
In addition, a portion of the credit facility is guaranteed by two individuals,
both of whom are directors and one of whom is an officer of the Company. The
facility is subject to various loan covenants with which the Company is in
compliance as of September 29, 2002.
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 requirements
for 2003. The Company also 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, the Company 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.
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 the Company's and
Tecstar's sales adversely.
OEM Automotive Supply Segment. All of the Company's OEM automotive supply sales
in 2002, 2001 and 2000 were to GM. 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 and
continuing into the second quarter of fiscal 2001, one of the Company's
manufacturing facilities was substantially shut down as a result of GM's model
changeover. This adversely affected the Company's fiscal 2000 and 2001 results.
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 OEM
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 a 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
STARCRAFT CORPORATION AND SUBSIDIARIES
Goshen, Indiana
CONSOLIDATED FINANCIAL STATEMENTS
September 29, 2002, September 30, 2001 and October 1, 2000
CONTENTS
REPORT OF INDEPENDENT AUDITORS ......................................... 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ....................................... 2
CONSOLIDATED STATEMENTS OF INCOME.................................. 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ................... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................ 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 29, 2002 and September 30, 2001
- --------------------------------------------------------------------------------
2002 2001
---- ----
(dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 284 $ 300
Accounts receivable
Trade, less allowance for
doubtful accounts: 2002 - $288; 2001 - $170 20,610 11,200
Tooling and engineering services 2,108 430
Manufacturers' rebates receivable - 109
Notes receivable 63 421
Inventories 8,204 4,636
Other current assets 1,863 1,408
------------ ------------
Total current assets 33,132 18,504
Property and equipment
Land, buildings and improvements 3,820 2,014
Machinery and equipment 4,540 4,091
------------ ------------
8,360 6,105
Less accumulated depreciation 2,836 2,801
------------ ------------
5,524 3,304
Other assets 436 202
------------ ------------
$ 39,092 $ 22,010
============ ============
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 29, 2002 and September 30, 2001
- --------------------------------------------------------------------------------
2002 2001
---- ----
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ - $ 814
Notes payable, others 1,474 -
Accounts payable, trade 18,058 11,998
Accrued expenses
Warranty 771 763
Compensation and related expenses 2,302 249
Taxes 440 912
Indemnification reserve 346 472
Other 675 1,256
------------ ------------
Total current liabilities 24,066 16,464
Long-term debt 12,704 8,092
Commitments and contingencies - -
Minority interest in subsidiary 1,991 157
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 -
2002 - 4,454,059;
2001 - 4,255,059 14,850 14,401
Additional paid-in capital 1,008 1,386
Accumulated deficit (15,527) (18,490)
------------ ------------
331 (2,703)
------------ ------------
$ 39,092 $ 22,010
============ ============
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 29, 2002, September 30, 2001 and October 1, 2000
- --------------------------------------------------------------------------------
2002 2001 2000
---- ---- ----
(dollars in thousands, except per share data)
Net sales $ 104,684 $ 48,934 $ 75,315
Cost of goods sold 79,416 38,184 56,719
------------ ------------ ------------
Gross profit 25,268 10,750 18,596
Operating expenses
Selling and promotion 2,014 1,209 927
General and administrative 13,501 8,689 7,409
Compensation expense from warrant and
option redemption 2,096 - -
------------ ------------ ------------
Operating income 7,657 852 10,260
Nonoperating (expense) income
Interest (476) (547) (864)
Other income, net 257 293 82
------------ ------------ ------------
(219) (254) (782)
------------ ------------ ------------
Income from continuing operations before
minority interest and income taxes 7,438 598 9,478
Minority interest 4,087 70 4,918
------------ ------------ ------------
Income from continuing operations before
income taxes 3,351 528 4,560
Income taxes 388 26 379
------------ ------------ ------------
Income from continuing operations 2,963 502 4,181
Loss from discontinued operations, net of income
tax expense of $24 in 2001 and $60 in 2000 - (4,031) (8,528)
Gain on sale of discontinued business, net of income
tax of $ -0- in 2001 - 352 -
------------ ------------ ------------
Net income (loss) $ 2,963 $ (3,177) $ (4,347)
============ ============ ============
Earnings (loss) per common share, basic $ .68 $ (.75) $ (1.03)
Earnings (loss) per common share, assuming dilution $ .58 $ (.75) $ (1.03)
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF sHAREHOLDERS' EQUITY
For the years ended September 29, 2002, September 30, 2001 and October 1, 2000
- --------------------------------------------------------------------------------
Outstanding Additional
Common Common Paid-In Accumulated
Shares Stock Capital Deficit Total
------ ----- ------- ------- -----
---------------(dollars in thousands)----------------
Balance, October 4, 1999 4,176,928 $ 14,144 $ 1,008 $ (10,966) $ 4,186
Net loss - - - (4,347) (4,347)
Issuance 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 common stock 10,000 19 - 19
-------------- ---------- ---------- ---------- ----------
Balance, September 30, 2001 4,255,059 14,401 1,386 (18,490) (2,703)
Net income - - - 2,963 2,963
Stock option redemption - - (378) - (378)
Issuance of common stock 199,000 449 - - 449
-------------- ---------- ---------- ---------- ----------
Balance, September 29, 2002 4,454,059 $ 14,850 $ 1,008 $ (15,527) $ 331
============== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 29, 2002, September 30, 2001 and October 1, 2000
- --------------------------------------------------------------------------------
2002 2001 2000
---- ---- ----
(dollars in thousands)
Cash flows from operating activities
Income from continuing operations $ 2,963 $ 502 $ 4,181
Adjustments to reconcile income from continuing
operations to net cash from operating activities
Compensation expense from warrants and options 2,096 378 -
Depreciation and amortization 766 1,241 1,031
Gain on sale of equipment (85) - -
Minority interest 1,834 (930) (611)
Changes in operating assets and liabilities
Receivables (10,979) (2,280) 4,114
Inventories (3,568) (43) 5,748
Accounts payable 6,060 (3) (1,682)
Accrued expenses 882 (1,273) 1,512
Other (689) (307) (983)
------------ ------------ ------------
Net cash from continuing operations (720) (2,715) 13,310
Net loss from discontinued operations - (4,031) (8,528)
------------ ------------ ------------
Net cash from operating activities (720) (6,746) 4,782
Cash flows from investing activities
Collection of notes receivable, net 358 106 -
Purchase of property and equipment (2,943) (811) (962)
Proceeds from sale of property and equipment 42 5 200
Proceeds from sale of conversion vehicle business - 277 -
Proceeds from sale of bus and mobility vehicle business - 8,000 -
------------ ------------ ------------
Net cash from investing activities (2,543) 7,577 (762)
Cash flows from financing activities
Proceeds from revolving credit agreement 15,149 7,657 6,755
Payments of revolving credit agreement (10,537) (4,065) (9,189)
Payments of long-term debt (814) (5,436) (1,058)
Redemption and cancellation of warrants and options (1,000) - -
Issuance of common stock 449 19 166
------------ ------------ ------------
Net cash from financing activities 3,247 (1,825) (3,326)
------------ ------------ ------------
Net change in cash and cash equivalents (16) (994) 694
Cash and cash equivalents at beginning of year 300 1,294 600
------------ ------------ ------------
Cash and cash equivalents at end of year $ 284 $ 300 $ 1,294
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid $ 473 $ 1,335 $ 1,380
Income taxes paid 137 259 454
See accompanying notes to consolidated financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 2002, September 30, 2001 and October 1, 2000
(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 after-market automotive parts and products
("automotive parts and products") to wholesale and retail customers. The
consolidated financial statements include the accounts of Starcraft Corporation
and its wholly owned subsidiaries: Starcraft Automotive Group, Inc., Imperial
Automotive Group, Inc., Starcraft Southwest, Inc., and National Mobility
Corporation. The Company has a 50% ownership interest in each of Tecstar, LLC
and Tecstar Manufacturing Canada Limited (collectively "Tecstar") which are OEM
automotive suppliers. The operations of Tecstar Manufacturing Canada Limited had
not commenced as of September 29, 2002 as the entity was created during late
fiscal year 2002. The accounts of Tecstar are also included in these
consolidated financial statements as the Company is deemed to exercise effective
control over Tecstar's financial policies through its representation on the
Boards 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 automotive parts and products segment sells products 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.
During fiscal 2001, the Company discontinued 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 an 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.
2002 2001 2000
---- ---- ----
Net sales $ - $33,483 $52,026
Gross profit (loss) - 1,163 (1,300)
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.
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Statements of Cash Flows - Noncash Activities: During 2002, the Company issued
notes payable as partial consideration in redemption of warrants and stock
options of $1,474. 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.
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 ($538
and $308 at September 29, 2002 and September 30, 2001, 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.
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.
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 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes: Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" 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 ("ABP")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related FASB
Interpretation No. 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. Diluted
earnings per common share shows the dilutive effect of any additional potential
common shares issuable under stock options.
Fiscal Year: The Company's fiscal year ends on the Sunday closest to September
30. The years ended September 29, 2002, September 30, 2001 and October 1, 2000
each consisted of 52 weeks.
Reclassifications: Certain amounts in the 2001 and 2000 consolidated financial
statements have been reclassified to conform with the 2002 presentation. These
reclassifications had no effect on total assets, shareholders' equity or net
income as previously reported.
Recently Enacted Accounting Standards: In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 will be effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management
does not expect a material impact on the Company's financial statements from the
adoption of SFAS No. 143.
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," as it relates to the accounting for the disposal of a
segment of a business (as previously defined in that Opinion). The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001. Management does not expect the adoption of
SFAS No. 144 to have a material impact on its financial condition or results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability be
recognized for those costs only when the liability is incurred. In contrast,
under EITF Issue No. 94-3, a company recognized a liability for an exit cost
when it committed to an exit plan. SFAS 146 also establishes fair value as the
objective for initial measurement of liabilities related to exit or disposal
activities. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not anticipate any near term
impact on the financial statements as a result of adopting this statement.
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. All of these notes were paid in full during
2002.
In fiscal 2000, as part of the start-up and support of a business to sell
conversion van kits to an assembler in Mexico, the Company advanced funding to
and received promissory notes from the owner of the assembly business. The notes
bear interest at prime rate + 1% and are payable in equal monthly installments
through December 2003. At September 29, 2002, there was $63 outstanding under
the notes.
NOTE 3 - INVENTORIES
The composition of inventories at September 29, 2002 and September 30, 2001 is
as follows:
2002 2001
---- ----
Raw materials $7,568 $4,582
Finished goods 723 262
------ ------
8,291 4,844
Allowance for slow-moving and obsolete inventories 87 208
------ ------
$8,204 $4,636
====== ======
NOTE 4 - NOTES PAYABLE, OTHERS
On September 25, 2002, the Company reached an agreement to redeem and cancel
360,000 outstanding warrants and 500,000 outstanding stock options previously
issued to two individuals, both of whom are currently directors and one of whom
is an officer of the Company, as incentive for their guarantee of certain of the
Company's debt (see Note 8). The warrants and stock options were redeemed at a
price of $5.54 per share (less each issue's underlying strike price), which
reflected a 15% discount from the average closing price of $6.52 per share for
the twenty-day period through and including September 25, 2002. The total cost
of the redemption was $2,474. Of this amount, the Company recorded $2,096 of
compensation expense in fiscal 2002 (in fiscal 2001, the Company had recorded
$378 of compensation expense for stock options issued in December 2000). The
redemption price of $2,474 consisted of $1,000 in cash and notes payable of
$1,474. The notes payable, which are unsecured, bear interest at 6.75% and are
payable in equal monthly installments beginning in January 2003, with the final
installment on or before June 15, 2003.
NOTE 5 - LONG-TERM DEBT
In December 2000, the Company and its subsidiary, Tecstar, each had credit
agreements with their primary lending institution in a combined amount of
$22,000, which consisted of term loans and revolving credit facilities. A
portion of the Company's bank debt was guaranteed by two individuals, both of
whom are currently directors and one of whom is an officer of the Company (see
Note 4). In September 2001, in conjunction with the sale of the Company's bus
and mobility business, the term loans were repaid. In addition, the Company
agreed to repay any outstanding revolving credit advances from the lender by
December 31, 2001. On December 5, 2001, the lending institution granted an
extension of time to June 30, 2002 for the Company and Tecstar to find
alternative financing. At September 30, 2001, the Company and Tecstar had $814
and $8,092, respectively, of outstanding borrowings under their revolving credit
facilities.
NOTE 5 - LONG-TERM DEBT (Continued)
In February 2002, Tecstar entered into a $10,000 revolving credit agreement with
a new lending institution, which matures on April 1, 2004. In May 2002, the size
of the facility was increased to accommodate growth in Tecstar's business.
Advances under the revolving credit agreement are limited to a specified
percentage of eligible receivables and inventories, subject to a maximum of
$15,000. At September 29, 2002, Tecstar had $11,295 of outstanding advances
under its revolving credit facility. The advances bear interest subject to a
margin table with ranges of 1/2% below the prime rate to 1/2% above the prime
rate, dependent upon Tecstar's tangible net worth. The borrowings are
collateralized by substantially all of Tecstar's assets. This facility is
subject to various loan covenants with which Tecstar was in compliance as of
September 29, 2002.
In June 2002, the Company entered into a $2,000 revolving credit agreement,
which matures on April 1, 2004, with the same lending institution that provided
Tecstar's new credit facility. At September 29, 2002, the Company had $1,409 of
outstanding borrowings under its revolving credit facility. Advances under the
revolving credit agreement bear interest at a rate of 1% over the prime rate and
are collateralized by substantially all the Company's assets. In addition, a
portion of the credit facility is guaranteed by two individuals, both of whom
are directors and one of whom is an officer of the Company. The facility is
subject to various loan covenants with which the Company was in compliance as of
September 29, 2002.
The total credit commitments under these two facilities are $17,000. At
September 29, 2002, there was approximately $591 and $3,705 available under the
Company's and Tecstar's facilities, respectively.
Annual maturities of long-term debt under these revolving credit agreements are
as follows:
2003 $ -
2004 12,704
--------
$ 12,704
The weighted average interest rate on outstanding borrowings as of September 29,
2002 was 5.30% (6.57% at September 30, 2001).
NOTE 6 - INCOME TAXES
Federal and state income taxes allocated to continuing operations, all of which
were domestic, consist of the following:
2002 2001 2000
---- ---- ----
Current
Federal $ - $ - $ -
State 388 26 379
------------ ------------ ------------
$ 388 $ 26 $ 379
============ ============ ============
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:
2002 2001 2000
---- ---- ----
Rate applied to pretax income from
continuing operations $ 1,139 $ 180 $ 1,550
State income taxes - net 255 17 250
Utilization of net operating
loss carryforwards (1,006) (182) (1,436)
Other, net - 11 15
---------- --------- ---------
$ 388 $ 26 $ 379
========== ========= =========
The composition of the deferred tax assets and liabilities at September 29, 2002
and September 30, 2001 is shown below:
2002 2001
---- ----
Deferred tax assets
Inventories $ 162 $ 246
Accrued warranty 174 181
Other accrued liabilities 587 502
Goodwill 77 84
Alternative minimum tax credit carryforward 278 278
Net operating loss carryforwards 5,215 6,221
------- -------
Total deferred tax assets 6,493 7,512
Valuation allowance (6,338) (7,206)
------- -------
155 306
Deferred tax liabilities
Accelerated depreciation (155) (306)
------- -------
Net deferred tax asset (liability) $ - $ -
======= =======
NOTE 6 - INCOME TAXES (Continued)
The alternative minimum tax carryforward of $278 has no expiration date. The net
operating loss carryforwards expires as follows: $387 in 2018, $1,001 in 2019,
$2,659 in 2020 and $9,325 in 2021.
The valuation allowance for deferred tax assets decreased by $868 in 2002 and
increased by $876 and 1,574 in 2001 and 2000, respectively.
NOTE 7 - 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 contribution, 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 $31,
$0 and $144 in 2002, 2001 and 2000, respectively.
NOTE 8 - 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 certain sales representatives who are
not employees of the Company. In fiscal 2002, there were 8,000 shares
outstanding under this plan. No compensation expense was recorded for options
issued and outstanding under this plan as the effect was immaterial. These
options also have a five year term.
At September 29, 2002, there were 610,783 options issued and outstanding under
these three plans. 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 29, 2002 have been at fair market value on the
date of grant.
On November 20, 1998 the Company issued warrants to purchase 400,000 shares of
common stock to two individuals as incentive for their partial guarantee of the
Company's long-term debt. The warrants entitled each of the individuals to
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 had a five year term.
NOTE 8 - STOCK OPTIONS (Continued)
On December 12, 2000 the Company issued stock options to purchase 500,000 shares
of common stock to two individuals as incentive for their partial guarantee of
the Company's long-term debt (see Note 4). Each of the individuals were entitled
to 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 had a five-year term.
On September 25, 2002, the Company elected to redeem and cancel warrants to
purchase 360,000 shares of common stock and options to purchase 500,000 shares
of common stock (see Note 4).
A summary of the Company's stock option and warrant activity and related
information under the stock option plans and warrants for the years ended
September 29, 2002, September 30, 2001 and October 1, 2000 follows:
2002 2001 2000
--------------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding at
beginning of year 1,713,283 $ 3.07 1,082,849 $ 3.50 969,849 $ 2.86
Granted 30,000 4.50 962,000 2.99 277,000 6.83
Canceled (66,000) 7.00 (294,566) 4.26 (26,500) 4.88
Redeemed (860,000) 2.67 - - - -
Exercised (199,000) 2.25 (10,000) 1.88 (59,000) 2.83
Expired (7,500) 4.75 (27,000) 4.81 (78,500) 7.44
------------ ------- ----------- -------- ----------- -------
Outstanding at
end of year 610,783 $ 3.53 1,713,283 $ 3.07 1,082,849 $ 3.50
============ ======= =========== ======== =========== =======
Exercisable at end of year 389,375 $ 3.33 1,394,042 $ 2.95 905,943 $ 2.83
============ ======= =========== ======== =========== =======
As of September 29, 2002, there were 610,783 options outstanding with exercise
prices that ranged from $1.50 to $7.50. The weighted-average exercise price of
these options is $3.53, and the weighted-average remaining contractual life is
approximately 3 years. As of September 29, 2002, the current market price of the
Company's common stock was higher than the exercise price for all of the
outstanding stock options.
NOTE 8 - STOCK OPTIONS (Continued)
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options. Under APB No. 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 SFAS No. 123, "Accounting for Stock-Based Compensation," and has
been determined as if the Company had accounted for its stock options issued in
fiscal 1996 through 2002 under the fair value method of SFAS No. 123. The fair
value was estimated as of the date of grant using a Black-Scholes option pricing
model with the following assumptions:
2002 2001 2000
---- ---- ----
Risk-free interest rate 5.25% - 6.23% 5.35% - 5.88% 5.23% - 6.79%
Dividend yield 0% 0% 0%
Volatility factor 77.45% - 94.70% 75.94% - 94.61% 75.88% - 77.83%
Expected option life 4 years 4 years 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:
2002 2001 2000
---- ---- ----
Proforma net income (loss) $ 2,674 $(4,316) $ (5,165)
Proforma net income (loss) per share, basic $ .62 $ (1.02) $ (1.23)
Proforma net income (loss) per share, diluted $ .52 $ (1.02) $ (1.23)
NOTE 9 - SHAREHOLDER RIGHTS PLAN
In August 1997, the Company adopted a Shareholders Rights Plan issuing one right
for each outstanding share of common stock. 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 10 - CONSIGNMENT ARRANGEMENTS
Prior to the sale of its conversion vehicle business and its shuttle bus and
mobility business in 2001 (see Note 1), 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.
All consignment and restricted sales agreements were terminated by November 15,
2001.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment. Rent expense charged
to continuing operations for 2002, 2001 and 2000 was $1,404, $1,126 and $841,
respectively. Rent expense charged to discontinued operations for 2001 and 2000
was $16 and $92, respectively. Future minimum annual lease commitments at
September 29, 2002 for long-term noncancelable operating leases are as follows:
2003 $2,006
2004 1,753
2005 1,663
2006 1,348
2007 1,203
------
$7,973
======
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
NOTE 12 - 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 $713, $450 and $181 in 2002, 2001 and
2000, respectively. Amounts charged to discontinued operations were $610 and
$493 in 2001 and 2000, respectively.
NOTE 13 - UNAUDITED FINANCIAL INFORMATION
Presented below is certain unaudited quarterly financial information for 2002,
2001 and 2000.
Quarter Ended
December 30, March 31, June 30, September 29,
2001 2002 2002 2002
---- ---- ---- ----
Net sales $ 20,910 $ 23,171 $ 29,403 $ 31,200
Gross profit 4,898 5,932 7,571 6,867
Net income (loss) 892 1,080 1,937 (946)
Basic earnings (loss) per share .21 .25 .44 (.21)
Diluted earnings (loss) per share .16 .19 .38 (.21)
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)
Basic earnings (loss) per share (.51) (.42) .29 (.11)
Diluted earnings (loss) per share (.51) (.42) .28 (.11)
NOTE 13 - UNAUDITED FINANCIAL INFORMATION (Continued)
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)
Basic earnings (loss) per share .13 .18 (.07) (1.27)
Diluted earnings (loss) per share .12 .16 (.07) (1.27)
The sum of quarterly earnings per share may not equal annual earnings per share
due to changes in the diluted potential common shares.
The net loss for the fourth quarter of the fiscal year ended September 29, 2002
was primarily attributed to a $2,096 non-recurring expense related to the
redemption of certain warrants and options during the quarter. This charge was
recorded as compensation expense (see Note 4).
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 14 - 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 automotive parts and products 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.
NOTE 14 - OPERATING SEGMENT INFORMATION (Continued)
The table below presents information about segments used by the chief operating
decision maker of the Company for 2002, 2001 and 2000. This information has been
restated to conform with the presentation of discontinued operations:
2002 2001 2000
---- ---- ----
Net sales by geographic region:
OEM automotive supply
Domestic $ 102,058 $ 43,694 $ 73,162
Automotive parts and products
Domestic 2,364 4,953 2,014
Export 262 287 139
---------- ---------- ----------
$ 104,684 $ 48,934 $ 75,315
========== ========== ==========
Operating segment income:
OEM automotive supply $ 4,747 $ 347 $ 5,467
Automotive parts and products 133 981 44
---------- ---------- ----------
$ 4,880 $ 1,328 $ 5,511
========== ========== ==========
Total assets:
OEM automotive supply $ 36,026 $ 17,504 $ 12,281
Automotive parts and products 3,066 4,506 4,550
Discontinued operations - - 18,163
---------- ---------- ----------
$ 39,092 $ 22,010 $ 34,994
========== ========== ==========
The following provides a reconciliation of segment information to consolidated
information.
2002 2001 2000
---- ---- ----
Operating segment income $ 4,880 $ 1,328 $ 5,511
Nonoperating income (expense) (219) (254) (782)
Income taxes (388) (26) (379)
Unallocated corporate expenses (1,310) (546) (169)
--------- --------- ---------
Income from continuing operations $ 2,963 $ 502 $ 4,181
========= ========= =========
NOTE 14 - OPERATING SEGMENT INFORMATION (Continued)
The following specified amounts are included in the measure of segment income
reviewed by the chief operating decision maker:
2002 2001 2000
---- ---- ----
Depreciation and amortization expense
OEM automotive supply $ 550 $ 319 $ 174
Automotive parts and products 216 63 58
Discontinued operations - 859 799
--------- --------- ---------
$ 766 $ 1,241 $ 1,031
========= ========= =========
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:
2002 2001 2000
---- ---- ----
OEM automotive supply $ 102,058 $ 43,694 $ 73,162
Automotive parts and products - - -
Discontinued operations - - 5,423
Significant customer concentrations in accounts receivable for the Company's
major customer are as follows:
2002 2001 2000
---- ---- ----
OEM automotive supply $21,853 $10,803 $ 8,071
Automotive parts and products - - -
Discontinued operations - - 25
NOTE 15 - 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 29, 2002, September 30, 2001 and
October 1, 2000 is presented below.
2002 2001 2000
---- ---- ----
Earnings (loss) per share, basic
Net income (loss) available to
common shareholders $ 2,963 $ (3,177) $ (4,347)
============ ============ ============
Weighted average common shares
Outstanding (in thousands) 4,327 4,245 4,214
Earnings (loss) per share (EPS), basic $ .68 $ (.75) $ (1.03)
============ =========== ============
Basic EPS - continuing operations $ .68 $ .12 $ .99
============ =========== ============
Basic EPS - discontinued operations $ - $ (.87) $ (2.02)
============ =========== ============
Earnings (loss) per share assuming dilution
Net income (loss) available to
common shareholders $ 2,963 $ (3,177) $ (4,347)
============ ============ ============
Weighted average common shares
Outstanding (in thousands) 4,327 4,245 4,214
Add: dilutive effects of assumed
conversions and exercises of
stock options (in thousands) 773 - -
------------ ------------ ------------
Weighted average common and dilutive
potential common shares outstanding (in thousands) 5,100 4,245 4,214
Earnings (loss) per share (EPS) assuming dilution $ .58 $ (.75) $ (1.03)
============ ============ ============
Dilutive EPS - continuing operations $ .58 $ .12 $ .99
============ =========== ============
Dilutive EPS - discontinued operations $ - $ (.87) $ (2.02)
============ =========== ============
Stock options were not considered in computing loss per common share for 2001 or
2000 because they were antidilutive.
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company paid administrative and engineering support in the amounts of $5,144
and $2,838 for 2002 and 2001, respectively to the Company's partner in Tecstar.
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
6, 2003.
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 6, 2003.
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 6, 2003.
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 6, 2003.
PART IV
ITEM 14. CONTROLS AND PROCEDURURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
as of a date within 90 days of the filing date of this Annual Report on
Form 10-K, the Company's principal executive officer and principal
financial officer have concluded that its disclosure and controls
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange
Act) are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect those controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 15. 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 29, 2002 and September 30, 2001
and for the fiscal periods ended September 29, 2002, September 30,
2001, and October 1, 2000):
Report of Independent Auditors
Balance Sheets
Statements of Income
Statements of Cash Flows
Statements of Shareholders' Equity
Notes to Financial Statements
(b) Reports on Form 8-K Report dated August 6, 2002
(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.
Schedule II
Valuation and Qualifying Accounts and Reserves
(Dollars in Thousands)
Balance at Deductions from/ Balance
Beginning of Charged to Additions to At 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 29, 2002 170 184 (66) 288
52 weeks ended September 30, 2001 255 -- (85) 170
52 weeks ended October 1, 2000 40 276 (61) 255
(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 24, 2002 By: /s/ Kelly L. Rose
-------------------------
Kelly L. Rose,
Chairman, President 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 ____ day of December, 2002.
1) Principal Executive Officer:
By: /s/ Kelly L. Rose Chairman, President and
----------------------------------- Chief Executive Officer
Kelly L. Rose
2) Principal Financial/Accounting Officer:
By: /s/ Timothy L. Burke Secretary, Chief Financial
----------------------------------- Officer
Timothy L. Burke
3) The Board of Directors:
By: /s/ Kelly L. Rose Director
-----------------------------------
Kelly L. Rose
By: /s/ John M. Collins Director
-----------------------------------
John M. Collins
By: /s/ David J. Matteson Director
-----------------------------------
David J. Matteson
By: /s/ Michael H. Schoeffler Director
-----------------------------------
Michael H. Schoeffler
By: /s/ G. Raymond Stults Director
-----------------------------------
G. Raymond Stults
CERTIFICATION
By signing below, each of the undersigned officers hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully
complies with the requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934 and (ii) the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of Starcraft Corporation.
Signed this 24th day of December, 2002
/s/ Kelly L. Rose /s/ Timothy L. Burke
- ---------------------------------------- -----------------------------
Kelly L. Rose Timothy L. Burke
Chairman, President and Chief Chief Financial Officer
Executive Officer
CERTIFICATION
I, Kelly L. Rose, certify that:
1. I have reviewed this annual report on Form 10-K of Starcraft Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Signed this 24th day of December, 2002
/ s / Kelly L. Rose
- ---------------------
Kelly L. Rose
Chairman, President and Chief
Executive Officer
CERTIFICATION
I, Timothy L. Burke, certify that:
1. I have reviewed this annual report on Form 10-K of Starcraft Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Signed this 24th day of December, 2002
/ s / Timothy L. Burke
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Timothy L. Burke
Chief Financial Officer
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 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. *
4.4(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. *
4.4(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. Incorporated by reference
to Exhibit 4.15(b) of the Registrant's Form
10-K for the fiscl year ending September 30,
2001. *
4.5 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. *
4.6 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. *
4.7 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. *
4.8 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. *
4.9 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. *
4.10 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. *
4.11 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. Incorporated by
reference to Exhibit 4.25 to the Registrant's
Form 10-K for the year ended September 30,
2001. *
4.12 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. Incorporated by
reference to Exhibit 4.26 to the Registrant's
Form 10-K for the year ended September 30,
2001. *
4.13 Waiver and Second Amendment to Amended and
Restated Loan Agreement, dated December 5,
2001, between Tecstar, LLC and Foothill
Capital Corporation. Incorporated by
reference to Exhibit 4.27 to the Registrant's
Form 10-K for the year ended September 30,
2001. *
4.14 Loan Agreement by and between Tecstar, LLC
and Comerica Bank dated February 13, 2002,
incorporated by reference to Registrant's
Report on Form 10-Q for the quarter ended
March 31, 2002. *
4.15 Loan Agreement by and between Starcraft
Corporation and Comerica Bank dated
June 28, 2002.
4.16 Promissory Note from Starcraft Corporation to
G. Ray Stults in the principal amount of
$803,900 dated as of September 26, 2002.
4.17 Promissory Note from Starcraft Corporation to
Kelly L. Rose in the principal amount of
$670,220 dated as of September 26, 2002.
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(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. *
10.2(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. *
10.2(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. *
10.2(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. *
10.2(e) 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. *
10.3 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. *
10.4 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. *
10.5 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. *
10.6 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. *
10.7 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. *
10.8(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. *
10.8(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. *
10.9 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. *
10.10 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. *
10.11 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. *
10.12 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. *
10.13(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. *
10.13(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. *
10.13(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. *
21 Subsidiaries of the Registrant. [ ]
23.1 Consent of Crowe, Chizek and Company LLP. [ ]
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* Incorporated by reference as indicated in the description.