SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 30, 2003
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-22048
STARCRAFT CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1817634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 1903
1123 South Indiana Avenue
Goshen, Indiana 46526
(Address of principal executive offices/zip code)
Registrant's telephone number, including area code: 574/534-7827
Post Office Box 1903
2703 College Avenue
Goshen, Indiana 46526
(Former address if changed since last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes: No: X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: April 30, 2003 - 4,747,802
shares of Common Stock, without par value.
STARCRAFT CORPORATION March 30, 2003
Form 10-Q
- INDEX -
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Balance Sheets - March 30, 2003 (Unaudited) 1
and September 29, 2002 (Audited)
Statements of Operations (Unaudited) for the three month 2
periods ended March 30, 2003 and March 31, 2002
and the six month periods ended March 30, 2003 and
March 31, 2002
Statements of Cash Flow (Unaudited) for the six month 3
periods ended March 30, 2003 and March 31, 2002
Notes to Financial Statements 4-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16-17
CERTIFICATIONS 18-23
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
(Unaudited) (Audited)
BALANCE SHEETS March 30, 2003 September 29, 2002
-------------- ------------------
(Dollars in Thousands)
ASSETS
Current Assets
Cash and cash equivalents....................... $ 538 $ 284
Accounts receivable, trade less allowance for
doubtful accounts: $100 at March 30, 2003
and $288 at September 29, 2002............. 30,189 20,610
Tooling and engineering services................ 2,277 2,108
Notes receivable................................ 98 63
Inventories ................................... 10,101 8,204
Other ................................... 4,109 1,863
-------- ---------
Total current assets........................ 47,312 33,132
Property and Equipment
Land, buildings, and improvements............... 4,475 3,820
Machinery and equipment......................... 6,190 4,540
------- ---------
10,665 8,360
Less accumulated depreciation................... (3,496) (2,836)
-------- ---------
7,169 5,524
Other assets ................................... 524 436
--------- ---------
$ 55,005 $ 39,092
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to related parties................ $ 704 $ 1,474
Accounts payable, trade......................... 23,810 18,058
Accrued expenses:
Warranty.................................... 914 771
Compensation and related expenses........... 1,367 2,302
Taxes....................................... 1,012 440
Indemnification reserves.................... 0 346
Other....................................... 841 675
--------- ---------
Total current liabilities............................ 28,648 24,066
Long -Term Debt ................................... 15,454 12,704
Commitments and Contingencies........................ -- --
Minority Interest in Subsidiary...................... 5,475 1,991
Shareholders' Equity
Preferred Stock, no par value; authorized
but unissued 2,000,000 shares........... -- --
Common Stock, no par value;
10,000,000 shares authorized
4,736,202 shares issued as of March 30, 2003
and 4,679,519 shares as of September 29, 2002 14,963 14,850
Additional paid-in capital..................... 1,008 1,008
Accumulated deficit............................. (10,543) (15,527)
--------- ---------
Total shareholders' equity................. 5,428 331
--------- ---------
$ 55,005 $ 39,092
========= =========
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
STATEMENTS OF OPERATIONS - Unaudited
3 Months Ended 6 Months Ended
------------------------------------- -----------------------------------
March 30, 2003 March 31, 2002 March 30, 2003 March 31, 2002
--------------- -------------- -------------- --------------
(Dollars in thousands, except per share amounts)
Net Sales $ 47,171 $ 23,171 $ 87,052 $ 44,081
Cost of Goods Sold ......................... 36,700 17,239 67,715 3,251
-------------- ------------ ------------ ------------
Gross profit ...................... 10,471 5,932 19,337 10,830
Operating Expenses
Selling and promotion ................. 468 612 851 879
General and administrative............. 4,022 3,121 8,511 5,684
------------- ------------ ------------ ------------
Operating Income 5,981 2,199 9,975 4,267
Nonoperating (Expense) Income
Interest, net ......................... (103) (135) (216) (236)
Other, net .......................... (24) 44 19 66
------------- ------------ ------------ ------------
(127) (91) (197)
------------- ------------ ------------ ------------
(170)
Income Before Minority Interest
and Income Taxes................... 5,854 2,108 9,778 4,097
Minority Interest in Income of Subsidiary 2,746 938 4,480 1,963
------------- ------------ ------------ ------------
Income Before Income Taxes 3,108 1,170 5,298 2,134
Income Taxes 203 90 441 162
------------- ------------ ------------ ------------
Net Income $ 2,905 $ 1,080 $ 4,857 $ 1,972
============= ============ ============ ============
Basic Earnings Per Share $ 0.61 $ 0.24 $ 1.03 $ 0.44
============= ============ ============ ============
Dilutive Earnings Per Share $ 0.56 $ 0.21 $ 0.95 $ 0.40
============= ============ ============ ============
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
STATEMENTS OF CASH FLOW - Unaudited
6 Months Ended
-------------------------------------------------
March 30, 2003 March 31, 2002
-------------- --------------
(Dollars in Thousands)
Operating Activities
Net income .......................... $ 4,857 $ 1,972
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization ......... 660 359
Minority interest...................... 3,484 1,210
Change in operating assets and liabilities:
Receivables ...................... (9,783) (4,450)
Inventories ...................... (1,897) 168
Other .......................... (2,246) (191)
Accounts payable .................. 5,752 594
Accrued expenses .................. (400) (287)
------------ ------------
Net cash from operating activities .... 427 (625)
------------ ------------
Investing Activities
Purchase of property and equipment (2,305) (500)
Other assets........................... (88) (401)
------------ ------------
Net cash from investing activities (2,393) (901)
------------ ------------
Financing Activities
Borrowings on credit agreements .... 7,272 5,063
Repayments on credit agreements .... (4,522) (3,659)
Payments on notes to related parties... (770) --
Issuance of common stock............... 113 21
Other.................................. 127 --
------------ ------------
Net cash from financing activities 2,220 1,425
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents ........................... 254 (101)
Cash and cash equivalents at
beginning of period................. 284 300
------------ ------------
Cash and cash equivalents at
end of period....................... $ 538 $ 199
============ ============
NOTES TO FINANCIAL STATEMENTS
STARCRAFT CORPORATION
March 30, 2003
Note 1. Basis of Presentation
The accompanying unaudited financial statements of Starcraft Corporation (the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to those rules and regulations. Reference is
made to the Company's audited financial statements set forth in its annual
report on Form 10-K for its fiscal year ended September 29, 2002.
In the opinion of the management of the Company, the unaudited financial
statements contain all adjustments necessary for a fair statement of the results
of operations for the three month and six-month periods ended March 30, 2003 and
March 31, 2002. The results of operations for the six months ended March 30,
2003 are not necessarily indicative of the results which may be expected for the
year ending September 28, 2003.
Note 2. Principles of Consolidation
The Company has a 50% ownership interest in each of Tecstar, LLC and Tecstar
Manufacturing Canada Limited (collectively "Tecstar"). The accounts of Tecstar
are 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.
The Tecstar Board of Managers is made up of three members and has powers and
authorities similar to a corporation's board of directors. The Company has
appointed two of the three members (67%). In addition, Starcraft Corporation
executive officers also hold two key positions within Tecstar; the Chairman and
Chief Executive Officer and the Chief Financial Officer. Each is actively
involved in Tecstar's policymaking decisions.
Note 3. Inventories
The composition of inventories is as follows (dollars in thousands):
(Unaudited) (Audited)
March 30, 2003 September 29, 2002
Raw Materials $ 9,133 $ 7,568
Finished Goods 1,118 723
--------- --------
10,251 8,291
Allowance for slow-moving
and obsolete inventories (150) (87)
--------- --------
Total $ 10,101 $ 8,204
========== ========
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
March 30, 2003
Note 4. Earnings Per Share
The computation of basic and dilutive earnings per share follows (in thousands,
except share and per share amounts):
3 Months Ended (Unaudited) 6 Months Ended (Unaudited)
--------------------------------- ------------------------------------
March 30, 2003 March 31, 2002 March 30, 2003 March 31, 2002
-------------- -------------- -------------- --------------
Basic earnings per share
Net income available
to common stockholders $ 2,905 $ 1,080 $ 4,857 $ 1,972
============ ============= ============ ============
Weighted average common
shares outstanding 4,733 4,492 4,710 4,490
============ ============= ============ ============
Basic earnings per share $ 0.61 $ 0.24 $ 1.03 $ 0.44
============ ============= ============ ============
Dilutive earnings per share
Net income available
to common stockholders $ 2,905 $ 1,080 $ 4,857 $ 1,972
============ ============= ============ ============
Weighted average common
shares outstanding 4,733 4,492 4,710 4,490
Add: Dilutive effects of
incentive stock options 417 647 396 452
------------ ------------- ------------ ------------
Weighted average potential
dilutive common shares outstanding 5,151 5,139 5,106 4,942
============ ============= ============ ============
Dilutive earnings per share $ 0.56 $ 0.21 $ 0.95 $ 0.40
============ ============= ============ ============
During the second fiscal quarter of 2003, the Company declared and issued a 5%
Common Stock dividend. As a result, the Company issued 225,460 additional shares
of common stock. The number of basic and dilutive shares, along with the basic
and dilutive earnings per share shown above reflect the stock dividend for all
periods shown above.
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
March 30, 2003
Note 5. Stock-Based Compensation
During the second quarter ended March 30, 2003, the Company adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure."
Stock options are granted for a fixed number of shares to employees with an
exercise price equal to the fair market value of the shares at the date of
grant. The Company accounts for the stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, the Company recognizes no compensation expense for
the stock options.
The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement No. 123 "Accounting for Stock-Based
Compensation.
3 Months Ended 6 Months Ended
------------------------------------- -----------------------------------
March 30, 2003 March 31, 2002 March 30, 2003 March 31, 2002
--------------- -------------- -------------- --------------
(Dollars in thousands, except per share amounts)
Net Income - as reported $ 2,905 $ 1,080 $ 4,857 $ 1,972
Deduct: total stock-based employee
compensation expense determined under
fair value based methods for all awards 17 43 96 148
------------- ------------ ------------ ------------
Net income - pro forma $ 2,888 $ 1,037 $ 4,761 $ 1,824
============= ============ ============ ============
Earnings per share - as reported
Basic Earnings per share $ 0.61 $ 0.24 $ 1.03 $ 0.44
============= ============ ============ ============
Dilutive earnings per share $ 0.56 $ 0.21 $ 0.95 $ 0.40
============= ============ ============ ============
Earnings per share - pro forma
Basic Earnings per share $ 0.61 $ 0.23 $ 1.01 $ 0.41
============= ============ ============ ============
Dilutive earnings per share $ 0.56 $ 0.20 $ 0.93 $ 0.37
============= ============ ============ ============
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
March 30, 2003
Note 6. Operating Segment Information
The tables below present information about segments used by the chief operating
decision maker of the Company for the three month and six month periods ended
March 30, 2003 and March 31, 2002. (Dollars in thousands)
3 Months (Unaudited) 6 Months (Unaudited)
------------------------------------ -----------------------------------
March 30, 2003 March 31, 2002 March 30, 2003 March 31, 2002
-------------- -------------- -------------- --------------
Net sales by operating segment:
OEM automotive supply $ 46,820 $ 22,491 $ 85,889 $ 42,655
Automotive Parts and Products: 351 680 1,163 1,426
------------- ------------ ------------ ------------
Total $ 47,171 $ 23,171 $ 87,052 $ 44,081
============ ============ ============ ============
Operating income (loss):
OEM automotive supply $ 3,006 a $ 1,084 a $ 5,061 a $ 2,260 a
Automotive Parts and Products (145)b (72) (232)b (141)
------------- ------------ ------------ ------------
$ 2,861 $ 1,012 $ 4,829 $ 2,119
============= ================ ============ ============
a Includes minority interest in income of subsidiary.
b Includes $75 reserve for termination of the cargo trailer operation.
The following provides a reconciliation of segment information to consolidated
information:
3 Months (Unaudited) 6 Months (Unaudited)
------------------------------- ----------------------------------
March 30, 2003 March 31, 2002 March 30, 2003 March 31, 2002
-------------- -------------- -------------- --------------
Operating income: $ 2,861 $ 1,012 $ 4,829 $ 2,119
Non-operating expenses (127) (91) (196) (170)
Federal and state income tax expense (203) (90) 441) (162)
Unallocated corporate income 374 249 665 185
------------ ------------ ------------ ------------
Net income $ 2,905 $ 1,080 $ 4,857 $ 1,972
============ ============ ============ ============
(Unaudited) (Audited)
March 30, 2003 September 29, 2002
Total Assets:
OEM automotive supply $ 52,565 $ 36,026
Automotive Part and Products 2,440 3,066
------------ ----------
$ 55,005 $ 39,092
============ ==========
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
March 30, 2003
Note 7. Notes Payable to Related Parties
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. The total cost of the redemption was $2.5 million,
consisting of $1.0 million in cash and $1.5 million in notes payable. The notes
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. On March 30, 2003, there was $0.7 million of these notes
outstanding.
Note 8. Warranty Expense
The Company's OEM Automotive Supply segment provides products to Original
Equipment Manufacturers ("OEM") under warranty terms similar to terms offered by
the OEM to its customers, which is generally 3 years or 36,000 miles. The
Company accrues an estimated liability for potential warranties at the time
products are sold, based on past experience.
Note 9. Related Party Transactions
In February 2003, the Company entered into an office lease agreement with a
company owned by a group of investors. Two of the members of the ownership group
are currently directors / officers of the Company. Costs associated with the
lease were based on similar arms-length transactions and approximates fair
market value. The lease has an initial term of three years and provides for
initial rental of $6,250 per month. It is being accounted for as an operating
lease.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STARCRAFT CORPORATION
RESULTS OF OPERATIONS
Comparison of the three months ended March 30, 2003
(Second Quarter Fiscal Year 2003)
to the three months ended March 31, 2002
(Second Quarter Fiscal Year 2002)
Net sales for the quarter ended March 30, 2003 increased $24.0 million to $47.2
million from $23.2 million for the quarter ended March 31, 2002. OEM Automotive
Supply sales increased $24.3 million to $46.8 million from $22.5 million. Three
of the OEM Automotive Supply plants and the H2 parts supply business were in
operation in the second quarter of fiscal 2003. A new fourth production plant
began commercial operation in the second fiscal quarter of 2003. During the
comparable period in fiscal 2002, three production plants were in operation. The
H2 parts supply business did not begin operation until the fourth quarter of
fiscal 2002. Automotive parts and products sales were $0.4 million, a decrease
of $0.3 million, reflecting lower sales attributed to the kit business in
Mexico.
Gross profits increased to $10.5 million (22.2% of sales) for the fiscal 2003
quarter from $5.9 million (25.6% of sales) for the fiscal 2002 quarter. The
increase in gross profit dollars is attributable to the higher sales level in
the OEM Automotive Supply segment. The decrease in gross profit margin
percentage was primarily due to sales of the H2 Hummer parts in the current
quarter and expenses incurred for the start-up of the Canadian operation. The H2
parts business accounted for 18.7% of sales in the quarter and has a lower
profit margin than the Company's other product lines. There were no H2 Hummer
parts or Canadian sales in the year earlier quarter. The Company also incurred
$0.3 million of expenses in the current quarter related to the start-up of the
new facility in Canada. The Canadian operation's gross margin was lower, due to
the start-up of the operation.
Selling and promotion expense was $0.5 million for the fiscal 2003 quarter
compared to $0.6 million for the fiscal 2002 quarter. General and administrative
expense was $4.0 million for the fiscal 2003 quarter compared to $3.1 million
for the fiscal 2002 quarter. These increases are primarily attributed to higher
salary and wage related expenses incurred in the OEM Automotive Supply segment
to support higher sales and production levels. In addition, prototype expenses
were $ 0.1 million in the current quarter, comparable to the year earlier
period.
Interest expense was slightly lower than a year ago, reflecting lower interest
rates on somewhat higher borrowings. Minority interest results from the Company
owning 50% of the OEM Automotive Supply segment. The Company does not have
federal income tax expense at this time due to existing operation loss carry
forwards generated from prior year losses that were fully reserved.
During the current quarter of fiscal 2003, a decision was made to discontinue
the cargo trailer division of the Automotive Parts and Products business
segment. This operation did not achieve its expected results and its prospects
for improvement were not sufficient to continue its operation. The Company
recorded a $0.1 million reserve against the current quarter's earnings to cover
potential future costs associated with this action. Management has deemed the
results of this operation to be immaterial; therefore, they are not reflected as
discontinued operations in the Company's financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STARCRAFT CORPORATION
RESULTS OF OPERATIONS
Comparison of the six months ended March 30, 2003
(Second Quarter Fiscal Year 2003) to the six
months ended March 31, 2002 (Second Quarter
Fiscal Year 2002)
Net sales for the six months ended March 30, 2003 increased $43.0 million to
$87.1 million from $44.1 million for fiscal 2002 period. OEM Automotive Supply
sales increased $43.2 million to $85.9 million from $42.7 million. Three of the
OEM Automotive Supply plants and the H2 Hummer parts supply business were in
operation in the first half of fiscal 2003. A new fourth production plant began
commercial operation in the second fiscal quarter of 2003. During the comparable
period in fiscal 2002, three production plants were in operation. The H2 Hummer
parts supply business did not begin operation until the fourth quarter of fiscal
2002. Automotive parts and products sales were $1.2 million, a decrease of $0.3
million primarily attributed to lower sales associated with the kit business in
Mexico.
Gross profit increased to $19.3 million (22.2% of sales) for the fiscal 2003
period from $10.8 million (24.6% of sales) for the comparable fiscal 2002
period. The increase in gross profit dollars is attributable to the higher sales
levels in the OEM Automotive Supply Segment. The decrease in gross profit margin
percentage was primarily due to sales of the H2 Hummer parts in the current
six-month period and expenses incurred for the start-up of the Canadian
operation. The H2 Hummer parts business accounted for 22.2% of sales in the
current six-month period and has a lower profit margin than the Company's other
product lines. There were no H2 Hummer parts or Canadian sales in the year
earlier six-month. The Company also incurred $0.9 million of expenses in the
current six-month period related to the start-up of the new production facility
in Canada. The Canadian operation's gross margin was lower, due to the start-up
of the operation.
Selling and Promotion expense was $0.9 million for the fiscal 2003 period,
comparable to the year earlier period. General and administrative expense was
$8.5 million for the fiscal 2003 period compared to $5.7 million for the
comparable 2002 period. This increase is primarily attributed to higher salary
and wage related expenses incurred in the OEM Automotive Supply segment to
support higher sales and production levels. In addition, prototype expenses were
$0.4 million in the current six-month period, compared to $0.2 million in the
year earlier period. Interest expense was $0.2 million, comparable to year
earlier levels.
SEASONALITY AND TRENDS
The Company's OEM automotive supply business sales and profits are dependent on
the automotive markets in the United States. The business is influenced by a
number of factors including OEM plant shutdowns, model year changeovers,
atypical weather for any sales region, interest rates, gasoline prices, and OEM
programs affecting price and supply.
In the ordinary course of business, the OEM Automotive Supply segment has
entered into multiple contracts of varying size and duration with General Motors
(GM). At the end of these contracts, the Company seeks to replace the expiring
contracts with similar contracts. However, the Company can provide no assurances
it will be able to continue to do so in the future. To mitigate this potential
exposure, the Company structures its facility leases and vendor supply contracts
to correspond with the terms of its GM contracts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
STARCRAFT CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Funds available from operations and under the Company's revolving credit
agreement were adequate to finance operations and provide for capital
expenditures during the six months ended March 30, 2003. Long-term was $15.5
million at March 30, 2003, compared to $12.7 million at September 39, 2002. The
increase reflects higher working capital requirements associated with the growth
of the OEM Automotive Supply segment.
Operations generated $0.5 million of cash in the first six months of fiscal 2003
compared to consuming $0.6 million in the fiscal 2002 period. Trade receivables
at March 30, 2003 were $9.6 million higher than September 29, 2002 due to the
higher sales volume.
Inventory balances at March 30, 2003 were $10.1 million, up $1.9 million from
the balances on hand at September 29, 2002, primarily due to the start of the
new production facility in Canada. Other current assets were $4.1 million at
March 30, 2003 compared to $1.9 million at September 29, 2002; this increase is
primarily attributed to the investment in potential new sales programs by the
OEM Automotive Supply segment and timing of tooling and engineering
reimbursements from customers.
In February 2002, the Company's OEM Automotive Supply segment ("Tecstar")
entered into a $10 million revolving credit agreement with a new lending
institution that matures on April 1, 2004. In May 2002 and again in January
2003, 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 $16.5 million. At March 30, 2003, Tecstar had $14.2
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 March 30, 2003.
In June 2002, the Company entered into a $2 million revolving credit agreement
that matures on April 1, 2004, with the same lending institution that provided
Tecstar's credit facility. At March 30, 2003, the Company had $1.3 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 an individual whom is a director
and officer of the Company. The facility is subject to various loan covenants,
with which the Company is in compliance as of March 30, 2003.
In February 2003, the Company entered into an office lease agreement with a
company owned by a group of investors. Two of the members of the ownership group
are currently directors / officers of the Company. Costs associated with the
lease were based on similar arms-length transactions and approximates fair
market value. The lease has an initial term of three years and provides for
initial rental of $6,250 per month. It is being accounted for as an operating
lease.
The Company believes that future cash flows from operations and funds available
under its revolving credit agreement 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
STARCRAFT CORPORATION
MANUFACTURING AND OPERATING TRENDS
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 filed for reorganization under the
Bankruptcy Code. To date, no supply problems have been encountered. However, to
mitigate any potential supply disruptions, the Company has established
relationships with additional suppliers.
The OEM Automotive Supply segment program related to the Shreveport, Louisiana
facility is due to end in September 2003. Sales for this program accounted for
7.2% of total Company sales for the first six months of 2003, compared with
10.8% of total Company sales for the first six months of 2002. With the
additional revenues generated from the H2 Hummer parts business and the Canadian
operation, revenues from the Shreveport operation will make up a smaller
percentage of fiscal 2003 revenues. GM has announced plans to introduce a
replacement vehicle to be produced in its Shreveport, Louisiana facility. Supply
contracts for the new vehicle will be subject to a competitive bidding process.
The Company's OEM Automotive Supply segment provides products to Original
Equipment Manufacturers under warranty terms similar to those offered by the OEM
to its customers. The Company accrues an estimated liability for potential
warranties at the time products are sold, based on past claims experience.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
In the course of normal business and in the preparation of its consolidated
financial statements in accordance with accounting principles generally accepted
in the United States, management is required to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
could differ from those estimates. Some of the more significant policies
include:
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.
Warranties: The Company follows the policy of accruing an estimated liability
for warranties at the time the warranted products are sold. The estimate is
generally based on past claims experience.
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
INCOME TAXES
The Company does not have federal income tax expense at this time due to
existing operating loss carryforwards generated from prior year losses that were
fully reserved.
At some point in the future, as the operating loss carryforwards are utilized,
the Company will begin recording federal income taxes. Management believes the
proforma information presented below is useful to enable a reader to determine
the impact income taxes would have on earnings, if the Compamy had not incurred
the operating loss carryforwards in prior years. The following table illustrates
the effect on net income and earnings per share as if the Company were incurring
income tax expenses at a 40% effective tax rate for the quarterly and six-month
periods ended March 30, 2003 and March 31, 2002, respectively.
3 Months Ended 6 Months Ended
------------------------------------- -----------------------------------
March 30, 2003 March 31, 2002 March 30, 2003 March 31, 2002
--------------- -------------- -------------- --------------
(Dollars in thousands, except per share amounts)
Net Income - as reported $ 2,905 $ 1,080 $ 4,857 $ 1,972
Deduct: pro-forma provision for
income taxes 1,162 431 1,942 789
------------- ----------- ----------- ------------
Net income - pro forma $ 1,743 $ 648 $ 2,915 $ 1,183
============= =========== ============ ============
Earnings per share - as reported
Basic Earnings per share $ 0.61 $ 0.24 $ 1.03 $ 0.44
============= =========== ============ ============
Dilutive earnings per share $ 0.56 $ 0.21 $ 0.95 $ 0.40
============= =========== ============ ============
Earnings per share - pro forma
Basic Earnings per share $ 0.37 $ 0.14 $ 0.62 $ 0.26
============= =========== ============ ============
Dilutive earnings per share $ 0.34 $ 0.13 $ 0.57 $ 0.24
============= =========== ============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
STARCRAFT CORPORATION
The foregoing discussion contains forward-looking statements regarding economic
conditions and trends, adequacy of capital resources, seasonality and supply of,
and demand for, the Company's products, and the prospects of Management's
operating strategies, all of which are subject to a number of important factors,
which may cause the Company's projections to be materially inaccurate. Some of
such factors are described in the Company's Form 10-K for the year ended
September 29, 2002, under the subsection entitled "Discussion of Forward-Looking
Information" which is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO)" and Chief Financial
Officer ("CFO"), of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the CEO and CFO have concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to the date of their evaluation,
there were no significant changes in the Company's internal financial controls
or in other factors that could significantly affect such controls, nor any
corrective actions with regard to significant deficiencies and material
weaknesses in such controls.
PART II OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders
(a) The Company held its annual meeting of shareholders on February 6,
2003.
(b) Election of Director Nominees:
Votes Cast
For Withheld
-------------- ------------
Kelly L. Rose 3,609,008 737,806
David J. Matteson 3,597,508 749,306
John M. Collins 3,926,939 419,875
(c) Other matters:
(1) Approval and Ratification of the appointment of Crowe, Chizek and
Company LLP as auditors for the Company for the fiscal year
ending September 28, 2003:
Votes Cast
Broker
For Against (Non-votes)
-------------- -------------- --------------
4,165,669 83,245 97,900
(2) Amendment to the 1997 Incentive Plan:
Broker
For Against (Non-votes)
-------------- -------------- --------------
2,159,915 221,261 153,600
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with the report:
Exhibit 4.1 -- Amendment Number 1 dated April 6, 2003, to the Loan
Agreement by and between Starcraft Corporation and Comerica Bank dated
June 29, 2002.
Exhibit 10.1 - Operating Agreement of Tecstar, LLC, dated January 1,
1999.
Exhibit 10.2 - Agreement for Office Lease By and Between Gateway
Property Development, LLC and Starcraft Corporation, dated February
15, 2003.
Exhibit 99.1 - Exchange Act Section 906; Certification of Kelly L.
Rose and Timothy L. Burke
(b) No reports on Form 8-K were filed by the registrant for the Period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARCRAFT CORPORATION
(Registrant)
May 7, 2003 By: /s/ Timothy L. Burke
-------------------------------
Timothy L. Burke
Chief Financial Officer
CERTIFICATION
I, Kelly L. Rose, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Starcraft Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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 7th day of May, 2003
/s/ Kelly L. Rose
- ------------------------------------
Kelly L. Rose
Chairman and Chief Executive Officer
CERTIFICATION
I, Timothy L Burke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Starcraft Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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 7th day of May, 2003
/s/ Timothy L. Burke
- -----------------------------------
Timothy L. Burke
Chief Financial Officer